It was never my thinking that made the big money for me. It was always my sitting – Jesse Livermore

In Reminsiscences of a Stock Operator, Jesse Livemore recounts the lesson he learned from a character called Partridge. While the others would sell their stocks when they got overextended in the short term and plan to buy them back upon a correction – attempting to profit from the market’s short term gyrations in other words – Old Partridge would hold saying “It’s a bull market you know”.

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At first, Jesse was annoyed by the old geezer but eventually he realized that he often sold his winners based on a short term market move with the intention of getting back in on a correction – but the stock never gave him a great opportunity to get back in and eventually went far higher than where he’d originally sold it. Partridge – on the other hand – rode out the correction but didn’t lose his position and reaped the profits of the full move. Jesse ultimately concluded that Partridge had probably made the same mistake when he was a young man and had learned his lesson.

Strong stocks in primary trends usually fail to give you a great opportunity to enter them. Therefore, when you own them hold on to your core position even though they may get overextended at times – until you think the primary move is over (as – for example – Buffett’s sale of Apple (AAPL) suggests he may believe in that case). That’s why I’m going to hold WMT after last week’s blowout earnings report even though I think 31x current year earnings is too expensive and 23% above its 200 DMA is extended for a mature stock. While I wouldn’t be surprised if WMT pulls back, I don’t want to sell, lose my position and not be able to get back in, because I think that longer term it’s going even higher.

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