Tom Scollon

When to walk away etc etc.,Much truth to that song which has been my guiding light now for over 20 years of trading and investing.

In life as well as investing.

Knowing when to cut losses, in my view, is more valuable than knowing when to take all your money off the table. As I cycle through the top 300 I am now seeing more stocks showing a wave five low in the coming weeks with very few showing an upward trend.
It is the sign of a tired market.
When you see headlines like ‘’9th year of bull run’’…. ‘’longest in history’’ – you also know this is the sign of a top ahead.Media hype is a great barometer or litmus test for the market.

As hype approaches a crescendo, the market is also reaching a peak.
As I keep saying I don’t think the market is about to suddenly fall out of bed but often demise can come like a thief in the night.
So, what to do?
For most of my years of trading I was always in the market – even with just a few stocks – I rationalised I was better to have my hand in as it would keep me sharp.
There is no doubt that having some skin in the game maintains your focus.
Right now, I am totally 100% cash.

Have I lost my nerve?

Certainly not!

I think a total break can be very healthy. In say, my last 25 years there was not a day when I did not at the very minimum cast an eye how the market finished on the day.It has never been work for me – more like a sport even when the stakes were high.
Most days I still scan the market as I like to see how each day unfolds. It takes me no more than 10 minutes to quickly view the charts for the top 300. I need to merely hit F4 to quickly cycle through my quote list.
You might think the above is absolute dribble. Maybe; but I like to set the scene. Now I will offer some guiding principles that have kept me out of trouble when a major top is ahead:

·I don’t wait for the last buck.I am happy to take the middle profit out of the big run up.I don’t want to fight with other traders at the exit.Have in the past but not now.

·I treat ‘’free’’ monies very differently from superannuation.In super many of you will not need to pay tax on profits so you need not wait for the market to reach the exact pinnacle of the top. Sell and become a spectator.

·If I have bought in recent times / months I will generally sell when a major top approaches. Risks are high for recent purchases. Some stocks may not be affected but I take no risks in this regard. In any case now, after many years of experience in the markets I just simply would not buy when a market has been running non-stop for nine years. I was guilty of doing that a long time ago but realise now two things. One is, markets just don’t keep going up. Theoretically this market could have another couple of years to go – I very much doubt that but lets say it did – then so be it. I have learnt that extent of acceptance. Secondly you make your money on the big investment decisions/strategies – not the last couple of bets.

·If I bought many years ago it is a tougher call. That is very much an individual call. But certainly, if the stocks have been ordinary performers I get out as soon as they do not look vibrant and I certainly would get out now. Some such stocks could bear the brunt of a major fallout, but I will not take that risk. I do not foresee Armageddon this time round, but I will not make such a call.
I severely prune as it could get nasty.
We just don’t know.

Enjoy the ride

Tom Scollon