Traders love to “buy the rumor; sell the news.” Well it didn’t quite go down that way this time. Stocks rallied hard on Monday in anticipation of a deal to avert the “fiscal cliff” (buy the rumor). They rallied even harder today after news of the finalized deal was announced late last night (buy the news, too?). This is quite unusual and I don’t really know what to make of it.

All in all, I think it’s probably a sign that most investors have had less exposure to stocks than they normally would have liked. In other words, they were underinvested and now that the clouds are clearing they’ve got some buying to do to catch up. In my opinion, this is ass backwards investing. Fear of losing keeps folks out of the market just when they should be buying. Then fear of missing out on the profits forces folks into the market when they should be taking those profits (selling). This is totally driven by our natural instincts. These emotions of fight or flight have helped human beings survive ferocious predators and natural disasters etc. for thousands of years. But in the markets these instincts are your enemies. In fact, professional traders use them against you to take your hard earned money from you every day.

Some will tell you you have to be emotionless to succeed in the markets. Honestly, I don’t think this is possible. I find the best thing to do is simply be mindful of these emotions. After paying attention for a while to your emotions through the ups and downs you can begin to learn from yourself and your reactions. Once you start feeling despondent it’s usually a decent time to start buying. Conversely, your own euphoria is a fantastic sell signal. At the very least, long-term investors would do well to simply stick to a well thought out plan and disregard their emotions.

Right now stocks are soaring. If you’re underinvested now is not the time to play catch up. Still, the trend clearly points higher and I don’t intend to fight it.

Chart of the Day

sc (9)

I’ve been saying for some time that this is the most bullish chart in my book. It’s a chart of the Russell 2000 Index, made up of small capitalization stocks. I watch this index closely because I think it’s a good leading indicator for the broader market. Today it made a new, all-time high. The uptrend that began in 2009 is intact and it just took out a major resistance level. This is all very bullish.

Hit the Links

  • This Is Your Brain On Fructose (Business Insider)
  • The iWatch Could Be The First Step In Apple’s Plan To Kill The iPhone (Business Insider)
  • Warren Buffett Is Still Crushing That Bet He Made Against Two Hedge Fund Managers In 2008 (Business Insider)
  • Intel to Challenge Cable By Offering Individual Channel And Show Subscriptions (Business Insider)
  • How Patagonia makes more by making less (Fast Company)
  • 6 Things You Won’t Believe That Are In The Fiscal Cliff Bill That The Senate Passes While Most Americans Were Drunk (The Stalwart)
  • Is taking control of your investments a priority in the new year? Make sure you keep it simple (Ritholtz)
  • Venture Capitalist Fred Wilson Just Did The Hardest And Smartest Thing Any Investor Can Do (Blodgett)
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