WOULD YOU DO THIS Definitely Marry your First

WOULD YOU DO THIS ? • Definitely Marry your First Date Stick with your Beta. Max! Live in One House for Life Keep that Old Car !! Never Switch Majors Stay in your Bad Relationship NEVER Change Jobs • THEN WHY SWALLOW “BUY AND HOLD” ? • • •

SELLING WELL: PROBLEMS AND SOLUTIONS

Don Cassidy Senior Research Analyst Lipper, a Reuters Company 1 -877 -955 -4773 1 -303 -537 -0860

WHY SELLING WELL IS CRUCIAL n Things Change! n n n Limit Losses Capture Unreasonable Gains Perform in Range-Bound Market

WHAT WE DO Trade In the Problem Car Sell the House and Move Quit the Job Burn/Donate the Leisure Suits Change Majors/Colleges Pull the Starting Pitcher Separate/Divorce … but HOLD the bad stock!

LIKE A WINNING SPORTS TEAM n Good Defense First n Then Good Offense

“Time changes men, but it does not alter our opinions of them. ” - Marcel Proust …LIKEWISE FOR STOCKS -Don Cassidy

FALLACIES in B&H Even zealots blink at the bottom! n. Pretends commissions/taxes are the main problem n. Assumes BUY decision was perfect n. Pretends no inflated price is too high n. Hopes bad companies will mend n. Ignores emotional extremes n

DETERRENTS TO OVERCOME Long-term Trend IS up n. Fits non-judgmental culture n Pressure to avoid mistakes (closure ends hope) n. Intuitive contradiction: selling on good news! n. Scary market, or company factors? n

“Control your emotions, or they will control you. ” – Sun Tzu, Chinese Military Scholar as quoted by F. J. Chu, in The Mind of the Market

Behavioral Finance Integrates n n n Rational Theory: Economics Finance Accounting Security Analysis n n Human Realities: Anthropology Psychology Sociology

BEHAVIORAL FINANCE’S INSIGHTS re SELLING Endowment Effect Cognitive Dissonance Disloyalty Avoidance Decision Stress Avoidance Reinforcement Comfort Seeking Closure Avoidance Perfectionism Vividness of Evidence/Social Proof

BEHAVIORS NOT TO IGNORE n “It’s Different this time!” n Other Rationalizations n n Celebration Behavior Loud Media Drumbeat

Classic Rationalization: “It’s different THIS time. ”

MORE NOT TO IGNORE n n Widespread Self-Confidence Advertising Playing to Aggressive Strategies

Watch the Crowd ! “Madness is the exception in individuals, but the rule in groups. ” - Nietzsche

FOUR SIGNS TO WATCH… * Mutual-Fund Net Flows * Humor * Advertising * Market Headlines off the Business Page

New Yorker Cartoon Count Bullish Percent and Total Number 1995: 100% (1) 1996: 63% (8) 1997: 50% (14) 1998: 46% (13) 1999: 70% (33)

New Yorker (continued) 2000: 25% (16) 2001: 4% (25) 2002: 0% (25) 2003: 0% (7) 2004: nmf (n=0 !)

VERY Quick Tour: 1999 -2003

Chart-Visible Reversal Clues Unsustainable Slope +/Acceleration +/Volume Crescendos Volume Spikes (yes, technical analysis; sorry!)

SPIKES – the ‘inverted V’

BE CONTRARIAN AFTER A MOVE Yes, It WILL Feel Uncomfortable… (and that’s a good thing!)

ANOTHER KEY REVERSAL SIGN • Calls for More gold @ $850 -tech stocks will double again -recently: oil price $100? -

Good Selling: To-DOs Have a sell plan when buying n. Spend Equal Thinking Time n. Use an A-A discipline n. Assume change! n. Give up on being perfect n. Watch Behavioral Signs of Highs n. Sell on first to speak: fundamentals OR technical analysis n

Selling: Operational Level Date, don’t marry, your darlings n. Graciously accept unreasonable returns n Sell volume crescendos n. Sell spikes immediately n (Internet compression effect!) n Believe the cockroach theory! n Keep a notebook on yourself

STOP AND LIMIT ORDERS * Enter target sells using P-S-T * Your cost not a valid factor * Stops not at arbitrary percent down * Use chart patterns to set stops * Avoid the bad odds of EPS time! - admittedly, more practical for smaller portfolios

Good Selling: DON’Ts List Don’t view sale as permanent verdict n. Don’t confuse stock with company n. Don’t Fixate on meaningless numbers n. Don’t Rationalize n. Don’t reach for one more day or point n. Don’t sell @ open unless the bad news is corporate cancer or scandal n. Don’t lower or pull stops n. Don’t let taxes rule thinking n

Cassidy’s RULE OF 3 -4 -5 -6 STOCKS RARELY RISE, IN A ROW, MORE THAN… 3 Years 4 Months 5 Weeks 6 Trading Sessions

Don’t Over-stay! Comfort is always greatest when danger of loss is largest. We perceive risk 180 degrees backwards.

The 3 Big Take-Aways UN-Fixate on Fundamentals and on Being Perfect Think ‘Human Behavior’! -- Watch Volume. Play COUNTER to Crowds. -- good defense / good offense

THANK YOU ! Don Cassidy Author: Trading on Volume