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Why investors buy at the top and sell at the bottom (01/19/2011)
By Al Thomas
It is a matter of psychology and has little to do with stock valuations.

Whatever you have as an occupation or something else you do for a hobby you probably do well. At least well enough to keep your job or have fun with your hobby. That doesn’t include golf. (joke) You are confident about what you do.

When I was an exchange member and floor trader I was known as a contrarian. When everyone was bullish I would be looking for the signal to sell. When the market was tanking I would be watching for a buying opportunity. At the end of the year I always had a nice profit by fading the crowd. They were always wrong. Why was the crowd always wrong? They wanted too much confirmation.

When a stock or market is at or near its lowest prices before it starts up there is fear of greater loss. It is the uncertainty that keeps the average investor and broker from realizing this is the place to buy. The herd is afraid and their fears feed upon each other not allowing them to make an intelligent decision.

I will not go into what the buy and sell signals are at this time.

When the outcome of a situation is unclear, uncertain or unknown every person hesitates to take action. No one likes to walk into a dark room especially if he has not been there before. He fumbles for the light switch. When he can see where he is going he will advance.

That is why brokers send out all those beautiful 4 color packets of information about companies. They are allaying the buying fear of the investor.The more he thinks he knows the more likely he will part with his money to buy shares.

When the market was on its lows in March of 2009 after the horrendous break in 2008 there were few buyers. Members of the herd had been slaughtered, others wounded. Those remaining were fearful and refused to buy anything until they had confidence the market was going up again.

Today the little investor is buying. He is convinced the market is going higher and it is. The Dow Jones Industrial Average is up 5,000 points and looks like the bull market is back again. The herd is happy as lemmings running toward the cliff.

The uncertainty has disappeared. Now is the time to buy. As a contrarian trader I am now watching for a place to sell and buy bear funds as I know there will be another market crash. When to do so has not yet shown. It will.

The sheeple are about to be shorn again; the lemmings will go over the cliff. Those who are contrarian investors will make money as the market slides into oblivion.

Have you become too confident? Too complacent? Be careful. These are dangerous times. 


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