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Well you know what I mean. It takes a long haul to get to a market top and no time for it to plummet to where it started.
Take a look at my chart from Hubb Investor – fabulous and free software available at www.hubbinvestor.com:
click to enlarge
Please excuse on this one-off occasion the business of my chart.
But you can see that it took five and a half years to get from the March 2003 low to the November 2007 top. But it took only 15 months to undo all that hard work.
To the level we are at now – say 5000 – it took 57 weeks from the March 2009 low. But the fall from that level in September 2008 took only 24 weeks.
I think you get my drift.
What conclusions can we draw from all of this? We can see making money is a much harder grind than losing it. Blink your eye at a point where the market is overbought and all your hard work can come undone.
We could conclude that at market highs some form of protection or insurance – call it what you will – may be a good idea. This can take the form of Options, CFD or counter positions on the futures market, to name just a few examples.
Because the road to the top is a grind we could also conclude that one needs to have staying power and approach it as did Mao on his long march – one step at a time. Making money is a little like that. It is making a lot of small but successful trades consistently over the long term. This is in contrast to what some traders aim for and that is a few ‘king hits’. I have not seen this work well for the masses.
Making money is a long haul so prepare yourself – and for falls along the way.
Enjoy the ride
Tom Scollon
Chief Analyst
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