market folly

Market strategist Jeff Saut is out with his latest investment strategy for the week entitled "The One Chip Rule."  In it, he compares the markets to playing poker, a comparison numerous others have drawn as there are various similarities.

Saut opines,

"In the stock market’s case, while the human natures of fear, hope, and greed still play a large role, I tended  to substitute card players with the personalities of stocks, the market makers, the Fed, Washington, and politicians. Using  such strategies I found that if you do your homework, and manage the risk, the odds of success in the markets are much  better than a card game. When you lose in the markets at least you get most of your money back and the government shares  in a portion of your losses via the capital gains/capital losses tax system. In a card game it tends to be basically all or nothing  with each hand."

The '1 chip rule' basically says that for every 10 chips you accumulate, you pocket 1 to pay yourself.  In investing, the corollary is to take some profits as your investments run up higher.

Saut uses this analogy because he's been raising some cash recently in anticipation of a decline in stock prices.  While he admits this strategy has been wrong in the near-term, he points to various indicators and seasonality that has caused him to be more cautious.

Embedded below is Jeff Saut's weekly market commentary:




You can download the .pdf here.

For more of the indicators that have led to Saut's cautious approach, head to his commentary from last month.