Grounded in Fundamentals

Review this recent article (PDF). An excerpt:

“New market high points inevitably are when many would-be investors begin to fret that everyone is getting rich but them, but the time is already past to make big money in the markets. With the Dow Jones industrials and other major market indexes flirting with historic highs, is this one of those times? A variety of investment professionals and strategists don’t think so. Each expressed the belief that the U.S. equity market’s steady, slow climb back from the 2002-03 trough has been driven by bedrock, fundamental strengths in the economy, not speculation. They also say there’s very little reason to believe we are at a peak, with a diverse mix of inexorable demographic and economic forces, both here and abroad, pointing to sustainable underlying business performance. In short, while short-term profits in the stock market are never assured and are dodgy to predict, the long-term chances of building wealth are pretty good, even if you start investing now. Yet even in the short term, analysts say there are many good reasons to be optimistic about the stock market and the economic cycle in the next year or two.”

If you follow the advice above, how does it help you to answer these questions?

1. How do you determine what market to buy or sell at any time?
2. How much of a market should you buy or sell at any time?
3. How do you determine when you enter a market?
4. How do you determine when you exit a losing position?
5. How do you determine when you exit a winning position?