Introduction


The Exit Cafe is dedicated to helping investors and professionals of all experience levels be more aware of changes to their risk exposure and the importance of using an intelligent exit strategy to control and act upon risk.

The editorial manager and a frequent contributor to our blog is Chuck LeBeau, an industry leader in the application of technical analysis for risk management. We hope you find our blog enjoyable, educational and valuable. Please feel free to chime in on any stories or analysis posted.

Jun 10, 2008

Buy and Hold Stocks: Why This Investing Strategy Is Dangerous

Buy and Hold Stocks: Why This Investing Strategy Is Dangerous for Your Portfolio by Mark Skousen, Chairman, Investment U

SmartStops comment: A brief and very well written article about the hazards of Buy and Hold even if it’s a famous well known company. Some very interesting charts are used to illustrate the point.

Excerpt: The Strange Case of Three "Solid Growth" Buy and Hold Stocks
In The Money Game, Goodman identifies "three sisters of solid growth" - companies that "everyone" on Wall Street agreed were so "solid" for the long term that you could buy and take delivery of their stock certificates, deposit them in a safe deposit box, and your heirs would be wealthy beyond their dreams by simply holding on for dear life.

What were these stocks? Goodman named:
• International Business Machines (NYSE: IBM)
• Xerox (NYSE: XRX), and
• Polaroid
Here's what happened to these three "sure-fire" winners over the last couple of decades…

What's the lesson? There's no such thing as a "buy and hold" stock. You must be eternally vigilant on the fundamental outlook of your favorite investments… especially in today's three "golden growth" stocks:

Link To Full Article

Jun 7, 2008

Merrill Tries to Temper Pollyannas

Merrill Tries to Temper the Pollyannas in Its Ranks
May 15, 2008Market Place By JENNY ANDERSON and VIKAS BAJAJ

SmartStop’s comment: It’s good to finally see a major Wall Street firm paying some attention to the importance of giving investors helpful “sell” advice. We hope this is the beginning of a new trend that will help focus investor attention on the importance of knowing when to sell.

Excerpts: Sometimes Wall Street seems a bit like the make-believe Lake Wobegon: Most stocks are above average, and it is always a good time to buy.At least that is the impression you might get from stock analysts who recommend where you should put your money. Even in bad times, the Street’s army of analysts rarely shout “sell.” In fact, they rarely utter the S word at all.

But Merrill Lynch, the nation’s largest brokerage firm, unveiled a new system on Tuesday for rating stocks that suggests Wall Street finally may be mustering up its courage to say “sell” more often. Starting in June, Merrill will require that its analysts assign “underperform” ratings to 1 out of every 5 stocks they cover. About 12 percent fall into that category now.

Today, after the Nasdaq bust and the outbreak of the deepest financial crisis since the Depression, only about 5 percent of all stock recommendations on Wall Street advise investors to sell, according to Bloomberg. That is up from less than 2 percent back in the heady days of the dot-com boom.
The bank analyzed stock performance over a decade and determined that from 1997 through 2007, on average, 37 percent of stocks in the MSCI world index and 40 percent of stocks in the Standard and Poor’s 500-stock index declined each year. The bank covers about 75 percent of the stocks in those indexes.

Link to full article:

Jun 6, 2008

No Sign of Sell on Wall Street

No Sign of `Sell' on Wall Street as Analysts Say: `Buy,' `Hold'
By Yalman Onaran and Christine Harper

SmartStops comment: Every self-directed investor needs to understand that research analysts are reluctant to ever publish an outright “sell” recommendation. To do so would risk alienating the corporate executives that provide the data and insight that good analysts need for their research. The hedge funds and institutions speak the same language as the analysts and know that in most cases a downgrade to “hold” really means “sell”.

Excerpt: Anybody who followed the advice of Wall Street's top-ranked analysts, none of whom would say ``sell'' for a single company in the securities industry this year, is reckoning with subprime-like losses.
Research analysts were unreliable guides during the collapse of the subprime mortgage market. They failed to foresee about $66 billion of writedowns that led to the unprecedented departures of CEOs from Zurich-based UBS and New York-based Merrill and Citigroup in less than six months.
Only 7 percent of analysts' recommendations have been sell this year, down from 11 percent in 2003, data compiled by Bloomberg show.

Link to full article: