Larry House

Trash Is King: Beware Being Late to the Party

Let's consider the possibilities: 1) the market goes higher steadily from here over time with pauses and modest corrections along the way; 2) the market goes relatively flat from here for an extended period of time; 3) the market has a correction soon and then resumes the march upward; 4) the market has a correction (perhaps to the March lows) and goes flat from there; 5) the market double dips to the March lows and then rises; 6) the market crashes and we go into Great Depression #2. Have I left out any real possibility? What chance do you give each possibility? I give #1-10%; #2- 15%; #3 -15%; #4 -25%; #5- 20%; #6- 15%. Now I know there are a lot of holes in this but, as an investor, I have to some way quantify my risk/reward in stocks. Now, if #1, #2, or #3 happen, I want to hold the stocks I have now. For #4, #5, or #6, I don't want to be in stocks. That means, by my view of things, I give myself a 40% chance of a good outcome in holding stocks from here. However, I give myself a 60% chance of a not-so-good outcome. Right or wrong, my own assessment (and I am the only one I answer to) is that the odds are against me, and I don't want to play this hand holding stocks. In addition, considering that any upside from here may be quite modest but the downside is almost limitless, I prefer not to be in stocks, even if I miss some upside. I bought stocks in March but sold in June. I have caught some upside since, but I just don't like the looks of the game right now. I'm going to fold.