3 Steps To Winning In The New Bull Market

Feb. 17, 2012 4:45 PM ETCAT55 Comments
John Tobey, CFA profile picture
John Tobey, CFA

Picture of three step chart, risingThe "easy" money 3-year bull market is ending, but a new one is beginning. The previous, extended period of rising stock prices was built on improving fundamentals. The 2010 and 2011 mega-fear periods helped keep worry alive, allowing stock investors to acquire and hold attractively priced stocks.

However, the shift to normality is upon us. The steady flow of obviously good economic news that began in late 2011 combined with the stock market's full recovery from the summer slump has alleviated worry and rebuilt investor interest. The good news is that the increased buying has compounded unrealized gains. The bad news is that we should not expect to earn those wonderful returns by continuing to hold leading companies - that approach has been rewarded.

Replacing that bull market is a new one, filled with opportunity, but requiring a different approach. Here are the 3 steps I believe are necessary to win in the coming bull market.

Note: To some (many? most?) readers, my suggestions below will appear questionable (inappropriate? crazy?). Perhaps it would help to know that my 40+ years of investing are filled with similar "crazy" steps that produced gains or avoided losses. At the heart is contrarian investing: Attempting to identify overwrought and underappreciated areas, then acting accordingly. Doing so correctly is the route to superior returns. Below are the steps I am currently taking.

Get ready: Sell those past holdings and book the gains

I previously wrote here that our long-held positions could be viewed as a source of cash as we find new opportunities. Now, however, I believe it is better to sell and raise cash.

The main reason is that many (too many) large, leading companies look to be on the verge of a breakout, yet continue to linger at their price levels. Caterpillar's (

This article was written by

John Tobey, CFA profile picture
I am the founder and editor of Investment Directions. My career has been managing and consulting to multi-billion dollar funds. Using the widely accepted “multi-manager” approach, I have worked with top investment managers throughout the country, gaining a high level of expertise. My career has spanned many market environments, and I have hands-on experience searching out opportunities and avoiding risks in all of them. I now devote my time to Investment Directions, with the goal of helping investors further their understanding and improve their investing skills. I am currently serving on: The AAUW Investment Advisers Committee and The City of Vista Investment Advisory Committee.

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