market folly

Raymond James' chief investment strategist Jeffrey Saut is back with his weekly Investment Strategy. Last week, his piece 'Octobered?!' looked at returns during some of the market's historically worst months. This week's piece definitely caught our eye because Saut calls the passage below "two of the most important paragraphs I have ever encountered in more than 40 years studying markets."

Taken from Stock Profits Without Forecasting by Edgar S. Genstein, here are the two paragraphs he is referring to, started with the following quotation:

"The absolute price of a stock is unimportant. It is the direction of price movement which counts.”

“During major sustained advances in stock prices, which usually occupy from five to seven years of each decade, the investor can complacently hold a list of stocks which are currently unpredictable. He doesn’t worry about the top because he knows he is never going to sell at the top. He knows that the chances are overwhelming in favor of the assumption that he will get far better prices by waiting until after the top is passed and a probable reversal in trend can be identified than he will ever get by attempting to anticipate the top, and get out on the nose.

In my own experience the largest profits we have ever taken have come from stocks purchased while they were making a new high in a market which was also momentarily expecting the top. As I have already pointed out the absolute price of a stock is unimportant. It is the direction of the price movement that counts. It is always probable, but never certain, that the direction of the price movement will continue. Soon after it reverses is time enough to sell. You should sell when you wish you had sold sooner, never when you think the top has arrived. That way you will never get the very best price – by hindsight your individual transactions will never look daring. But some of your profits will be large; and your losses should be quite small. That is all that is necessary for a satisfactory, enriching investment performance.”


Definitely food for thought and especially relevant given the massive rally we've seen from this year's March lows. Embedded below is Saut's market commentary for this week, "Direction Dictates":



Alternatively, you can download the .pdf here.

If you're interested, you can also check out Jeff Saut's commentary from last week where he examined historical stock market performance in the month of October.