The Truth About Investing Advice

“Act now,” warns the mattress salesman on the late-night television commercial, “before this deal goes away forever.”

In sales talk, this is called the “takeaway close.” The salesman dangles a terrific offer in front of you and then threatens to take it away if you don’t close the deal immediately. It’s an effective technique - used to sell everything from mattresses to cars to health club memberships to… stocks.

Think about it. How many times in the past few weeks have you heard an analyst say something like, “Stocks are headed higher. Investors need to get in now or risk missing the rally.”

Stock rallies, though, are a lot like buses. If you miss one, there’s another coming along right behind it. So it’s curious that the average person, who wouldn’t bother trying to chase down a bus, feels the need to chase stocks higher.

You never get just one opportunity to buy stocks. There’s always a second chance. Heck, sometimes you get three or even four chances. So there’s no need to chase a rally.

As an extreme example, take a look at this 12-year chart of the S&P 500…

Twelve years ago, the index was trading around 900. Yesterday, it closed at about 900. And several times throughout the years, it traded near 900.

If you missed buying the S&P 500 12 years ago, you’ve had plenty of other opportunities to buy it at the same price since then. But if you chased the rallies, then no matter where you bought, you’re underwater today.

Granted, stocks have been higher in the interim, and you could have taken some profits off the table. Although, I don’t ever recall hearing a CNBC analyst say, “Get out now or risk suffering through the decline.”

My point is, there’s no need to chase stocks higher. If you believe stocks have entered a new bull market, then the proper strategy is to wait for the inevitable corrections before putting money to work.

On the other hand, if you think - as I do - that the rally off the March lows is simply a strong counter-trend rally in the midst of a bear market, then you need to sell into this strength.

Act now before this deal goes away forever.

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