The Tell: Stop! Read these two paragraphs before making your next trading decision

In his book, “Stock market profit without forecasting,” Edgar Genstein offered up two of the most important paragraphs ever written on investing, according to Jeffrey Saut, chief investment strategist at Raymond James.

And even though they were written more than 60 years ago, they’re worth revisiting considering now that volatility VIX, -4.88% has returned to the market:

During major sustained advances in stock prices, which usually occupy from five to seven years of each decade, the investor can complacently hold a list of stocks which are currently unpredictable. He doesn’t worry about the top because he knows he is never going to sell at the top. He knows that the chances are overwhelming in favor of the assumption that he will get far better prices by waiting until after the top is passed and a probable reversal in trend can be identified than he will ever get by attempting to anticipate the top, and get out on the nose. In my own experience the largest profits we have ever taken have come from stocks purchased while they were making a new high in a market which was also momentarily expecting the top.

As I have already pointed out the absolute price of a stock is unimportant. It is the direction of the price movement that counts. It is always probable, but never certain, that the direction of the price movement will continue. Soon after it reverses is time enough to sell. You should sell when you wish you had sold sooner, never when you think the top has arrived. That way you will never get the very best price—by hindsight your individual transactions will never look daring. But some of your profits will be large, and your losses should be quite small. That is all that is necessary for a satisfactory, enriching investment performance.

Saut says he’s quoted from those graphs several times over the years.

“DO NOT read them just once. Go off to a quiet spot that invites contemplation and READ THEM SEVERAL TIMES,” he wrote in a post on the Advisor Perspectives blog. “Then reflect on all of the mistakes you have made in trading and investing. Bells will ring, and curses will be uttered, if you are truly honest with yourself.”

Investors should “keep this quote handy, read it over, and study it every time you get ready to make an important buy or sell decision, especially if your emotions reign,” he said, adding that this stock market has proven especially challenging.

For the bears, Monday surely presented some challenges, as the Dow DJIA, +0.87%  closed up more than 200 points.

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