Chief Editor
Last Tuesday I rang my on-line broker - who shall remain nameless – as their on-line trading was jammed – but so also was their phone service. I guess this is not surprising given the vast number of investors opening up new accounts – and margin lending accounts.

Margin borrowers will have done well over the last few weeks – assuming they picked the right stocks – but they will need to be cautious at the end of a big run. One of the disadvantages of Margin Accounts is that you must sell after a major run up – whether you "see" this on a daily or weekly basis – as once the market retraces not only do you give up your profits but it can also bring you into negative cash territory. If there are a large number of readers who would like Margin Lending reviewed then please email us and we will be happy to carry an article on the subject.

Being a long term client of this broker I felt somewhat indignant as half an hour passed in the phone queue until I realised I was doing what every one else was doing - actually opening up an account. Well it was really a joint account with my 15 year old but I will consider it joint when he puts his money up front! The thought also crossed my mind if I was giving him too easy a ride and maybe he has to learn how to make money the hard way? Some of us parents though, have soft underbellies.

The other reason I persisted to hold my place in the queue on the phone was that I wanted to sell a couple of stocks. Whilst I am generally happy to stay with my long term trades I am watchful for stocks that – despite the hype – are really topping. It is too convenient to hang on to every share you possess at such heady times as this – my strong recommendation is to prune at these times.

I thought the All Ords was going to peak on Tuesday and as good a day as any to sell. It hit a high that day of 3178 but then closed on a daily, weekly and fourteen month high of 3180 on Friday. I imagine it will be a little quieter on Monday in concert with the Dow which looked bearish Friday last.

I sympathise with the inexperienced investor because the signals are conflicting right now. Plus sideline commentators in Australia and globally, are divided as to where the markets are heading. And at the extremes of the spectrum there are respected analysts – at one end saying to stay in cash as the markets are heading for a major slump and at the other end of the spectrum others are touting that this is a major bull market the likes of which we have never seen before.

What I do know is:

That markets retrace and there will always be new, great buying opportunities.
It is prudent to be cashed up to take advantage of any new opportunities.
It is smart to take profits selectively.
Patience always pays off.

My view is that there could well be some short term downside from here. I believe bonds have some way to fall yet and this means rising interests rates which in turn mean falling equities. Sure the US economy is improving but there has also been some multi factoring of the good news. That is every time there is some positive economic news up goes the Dow. But these indicators are just confirming the same economic trend in a different way.

There was a sharp rise in the Put:Call Ratio in the US on Friday so it does appear the care free climate may be is tempering a little as investors adopt a more cautious approach.

Time will tell.

Tom Scollon