• Definitely Marry your First Date• Stick with your BetaMax!• 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” ?

WOULD YOU DO THIS ?

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

Things Change!

Limit Losses

Capture Unreasonable Gains

Perform in Range-Bound Market

WHAT WE DO 

Trade In the Problem CarSell the House and Move

Quit the JobBurn/Donate the Leisure Suits

Change Majors/CollegesPull the Starting Pitcher

Separate/Divorce… but HOLD the bad stock!

LIKE A WINNING SPORTS TEAM

Good Defense First

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!Pretends commissions/taxes are the

main problemAssumes BUY decision was perfect

Pretends no inflated price is too highHopes bad companies will mend

Ignores emotional extremes

DETERRENTS TO OVERCOME

Long-term Trend IS upFits non-judgmental culture

Pressure to avoid mistakes (closure ends hope)

Intuitive contradiction: selling on good news!

Scary market, or company factors?

“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

Rational Theory:

Economics Finance Accounting Security Analysis

Human Realities:

Anthropology Psychology Sociology

BEHAVIORAL FINANCE’S INSIGHTS re SELLING

Endowment EffectCognitive DissonanceDisloyalty Avoidance

Decision Stress AvoidanceReinforcement

Comfort SeekingClosure Avoidance

PerfectionismVividness of Evidence/Social

Proof

BEHAVIORS NOT TO IGNORE

“It’s Different this time!”

Other Rationalizations

Celebration Behavior

Loud Media Drumbeat

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

MORE NOT TO IGNORE

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

Current Flows and Recent Performance

-60

-40

-20

0

20

40

60

Jun

-98

Se

p-9

8

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8

Ma

r-9

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Jun

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r-0

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Jun

-00

Se

p-0

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De

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Jun

-01

Se

p-0

1

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c-0

1

Ma

r-0

2

Jun

-02

Se

p-0

2

De

c-0

2

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3

Jun

-03

Se

p-0

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Jun

-04

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illi

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-40

-30

-20

-10

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10

20

30

40

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% c

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: S

&P

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0

Month's Flows, $ Billion 6-mo % chg: SP 500

New Yorker Cartoon CountBullish 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 CrescendosVolume 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 buyingSpend Equal Thinking Time

Use an A-A disciplineAssume change!

Give up on being perfectWatch Behavioral Signs of

HighsSell on first to speak:

fundamentals OR technical analysis

Selling: Operational Level

Date, don’t marry, your darlingsGraciously accept unreasonable

returns

Sell volume crescendosSell spikes immediately

(Internet compression effect!)

Believe the cockroach theory!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 ListDon’t view sale as permanent

verdictDon’t confuse stock with

companyDon’t Fixate on meaningless

numbersDon’t Rationalize

Don’t reach for one more day or point

Don’t sell @ open unless the bad news is corporate cancer or

scandalDon’t lower or pull stops

Don’t let taxes rule thinking

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

3 Years4 Months5 Weeks

6 Trading Sessions

Don’t Over-stay!

Comfort is always greatest when danger of loss is largest.

We perceive risk180 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