52-week highs could be used as a reallocation exit strategy back into assets quoting near 52-week lows.
Highs are more visible than lows. So we buy what is visibly gaining than what is struggling at the lows. I know two experts who have a 52-week strategy. One talks about buying stocks that break above 52-week highs. The other expert is Gupta uncle (a veteran investor), who sells stocks when they reach 52-week highs.
Momentum investing is easy. This is why there are more people buying stocks than selling stocks at 52-week highs. Actually, I know very few people who sell at 52-week highs. We have more trend watchers among us who get excited about new highs than getting worried about them. Gupta uncle never looks at charts. He keeps a track of the prices and exits when they reach 52-week highs. Another reason why he is able to do it is because he works with a portfolio. He has a large portfolio, so he is not in love with stocks and his detached approach helps him get out. He has a similar approach to entry. When things get too subdued, he buys.
| KEY INDICATORS | |||
| INDEX | CURRENT LEVELS * | 52 WEEK LEVELS | DIFF| (%) |
| NEAR THEIR LOWS | |||
| BSE REALTY | 2,734 | 2,454 | 11.40 |
| BSE METALS | 16,638 | 13,827 | 20.30 |
| BSE OIL & GAS | 10,647 | 8,940 | 19.10 |
| BSE POWER | 2,911 | 2,767 | 5.20 |
| NEAR THEIR HIGHS | |||
| BSE SMALLCAP | 9,221 | 11,336 | -18.70 |
| BSE CONS. DURABLES | 6,059 | 7,369 | -17.80 |
| BSE MIDCAP | 7,558 | 8,791 | -14.00 |
| BSE 500 | 7,727 | 8,434 | -8.40 |
| BSE CAPITAL GOODS | 15,313 | 16,860 | -9.20 |
| BSE FMCG | 3,545 | 3,787 | -6.40 |
| SENSEX | 19,889 | 21,108 | -5.80 |
| BSE AUTO | 10,119 | 10,536 | -4.00 |
| BSE HEALTHCARE | 6,503 | 6,806 | -4.50 |
| CNXIT | 7,332 | 7,212 | 1.70 |
| * As on December 20, 2010 | |||
Overconfidence makes us believe that we can trade our way to richness with a single Nifty. One asset trading is the biggest illusion of “modern” investment. There are courses and books on trading built around one asset trading. Master swing on E mini S&P 500 futures. Abandoning a portfolio at the expense of higher risk (single asset) strategy invariably turns against the trader, sooner or later. We have already showcased that Nifty sleeps (underperforming periods) in a previous article (see ATMA website-Chart of the week). One asset trading is suicidal and absolutism built around that asset dead. One has to really ask the question, whether he is in the business of making money consistently in the long run or feeling great about doubling in a week? I understand that the kick of doubling money in a week is high, but believe me in the long run you are heading into karmic punishments not rewards.
Stock markets are like any other enterprise where you are going to make big deals only 20 per cent of the time. So if you are not going to contain the risk in the rest 80 per cent of the time, you will never reach the 20 per cent opportunity. You have to avoid the burn out. This of course is not what they teach you at Dalal Street.
Markets are about managing risk more than generating return. Rather markets are all about managing risks. The more you attack risk the more you can generate a consistent return. Humans are shortsighted. They will always be and this is why we have forgotten the idea of buying stocks without margin at 52-week lows, holding them for a year and booking partial gains by selling the stocks when they hit 52-week high and start all over again.
The author is a CMT and co-founder, Orpheus CAPITALS, a global alternative research firm
