Every time the markets reach new highs for most of us it is a good thing. Our assets have climbed higher but at some point one needs to ask is the glass half full or half empty. When the markets go up, understandably we know markets will go down, the issue is how much will it go for a correction and when. Unfortunately we only know the answer in hindsight. David Stockman who was the former Budget Director under President Regan is warning that the time will be when the fed raises interest rates. The fed and other central banks around the world have increased money supply by buying and issuing bonds, at some point they will slow, issue less and raise interest rates. Interest rates will make credit more expensive. One of the many concerns David Stockman has is the amount of leverage or speculation there is in the bond market – if rates go down, bond prices fall and more collateral must be put up by speculators – who try to leverage as much as possible without putting up their own money.

Coming back to how to sell. It is complicated because if you sell and the market goes up you feel you have missed opportunities. If you sell, what alternatives do you buy?  Barry Ritholtz of Bloomberg View wrote a column about when to sell.

What is the basis for making a sell call? Most of the time it is emotion and that is a terrible strategy because the market has already reflected the news in the pricing.

What if you are wrong? Most average people with investments are not traders – if you are a trader there are a multiple strategies to reverse an error. Mr. Ritholtz has a rule which is draw a line in the sand on the downside, if the stock goes lower than the line you admit you made a mistake and sell. On the upside, it is easy to take profits, one thing you can do on the upside is as the stock gets to be a higher percentage of your asset allocation you sell to keep yourself reasonably diversified. An easy method if your stock has doubled, sell half which makes your remaining half cost 50% less and then you have lots of flexibility as the stock price goes up and down or fluctuates.

What if you are right? Assume you are right to sell everything and the market collapses. When do you get back in? How long before you buy back? It is easy to say buy low and sell high, it is much harder to do.

Do you have discipline? If you have a sell plan and a strategy for implementing it. can you stick to it? It is very easy to second guess yourself. You will always hear conflicting viewpoints which ones do you implement?

What is the cost-benefit analysis? If you sell high which is a good thing, you will have capital gains, of course part of the tax system is offsetting capital gains with losses and moving money into tax savings accounts.

Linking to dividend paying stocks, one of the good things about the dividend paying stocks is the reason you own them, do they pay a dividend? will the company continue to make money and pay the dividend? If the answer is no, then you can seek alternatives. The discipline of the dividend can your line in the sand.

There are more questions than answers, till the next time – to raising questions.