Eco Investor February 2018


A Time to Take Profits

Two things that are certain about the share market is that one way or another everyone is trying to predict the future, but in the end no one can really tell the future with absolute certainty. So a lot of share market activity, analysis and commentary is about the next best thing - knowing where we are in relation to the past, and combining this with a whole lot of data, analysis, experience and gut feel to get an understanding or feel for the probable future.

At the moment there is a lot of immediate past for investors to get their heads around. The part that concerns many, including me, is the big rise in the US stock market. No one can answer the key questions of how long the boom will last, and whether there will be a big bust or just a downturn. But experience tells me it is time for investors to have or to get a strategy for what is happening and what may happen.

A look at the Dow Jones Industrial Index since 1986 shows how steep the rise has been, especially over the last two years - 57 per cent. Newton said it all when he said what goes up must come down. He also gave a formula for when and by how much - but in a serious commercial mistake the formula was for gravity and not the stock market.

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Fortunately the rise in the S&P/ ASX 200 Index is not nearly as steep. It is still below its pre GFC high, but in the big picture it is not far off and it is at a 10 year high including a 7 per cent rise in the past three months.

The market buoyancy can also be seen in the Australian clean tech sector. Eco Investor's chart of share price highs and lows in this issue for the December-January period is a thing of beauty for investors in the market. Of the nearly 100 stocks we follow, 34 are at a high of at least one year or above. About 18 of these, over half, are at a five year, 10 year or all time high. Only nine stocks are at a low, and most for a short period.

That is a snapshot of where we are at present and in relation to the past. The next question is what to do about it? What's a good strategy? That depends on what sort of investor you are and how you invest. But whatever your strategy may be, it seems like a good time to think about taking some profits.

Some people like to buy on the way up. Being more conservative, I prefer to sell on the way up. I long ago decided that I will never regret leaving a profit for the next investor, no matter how big. As long as I am ahead, I am happy, even if it a small profit.

And whatever the market may be doing as a whole, investing is still a stock by stock process and there are still good companies at the low end of their current trading ranges. I've take small positions in four core securities in the past two months. So, no, I don't think it is time to sell everything. For what it is worth, during the GFC I missed the time to sell everything, so my view may not be worth much. But that is why I am trying harder this time.







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