NEW HIGHS LEAD TO MORE NEW HIGHS

I don't know how many people out there are acquainted with Jesse Livermore, although I do believe that everyone should be. Often I have conversations that go something along the lines of "hey, you might want to look at this stock, it's been doing really well and it's making new highs" and almost invariably the response I get is "I don't want to buy a stock that is trading at an all time high". 

Now, I don't understand why anyone would say that, or why people don't want to buy stocks that are continually getting more and more expensive. Look at something like Shoprite (SHP). At one point, it was also a penny stock, then later it started making new highs almost every week for, well, years really and now it is trading at R174.00 a share.  If you bought it at it's then all time high of say, R34.00 for example, would you have made a good trade? The answer is obviously yes.

Now what does any of that have to do with Jesse Livermore? I hear you pondering. Well, Jesse Livermore, somewhere in his book, says something along the lines of; he only buys stocks that keep making new record highs, because, record highs, tend to lead to more record highs. Look at Coronation Fund Managers (CML) as an example. 

So why is any of this relevant and what is my point? The point is, we here at Rock Capital are of the belief that it is probable for us to see the United States, and South African markets continue to make new highs for a little while yet. We have seen our correction, although only 6% - and by no means does it mean that we cannot go down further - it appears that for the next few months, possibly years, we will continue to be in a bullish market. Yes, there will be pullbacks, there always are and nothing ever moves in a straight line, however we believe that if we simply follow the market as we should, we will be following it up for some time yet. New highs lead to more new highs and the Dow Jones Industrial Average (DOW) just made a new high very recently. 

This does not change the rules of the game though, you need to make sure that you are in good strong stocks and that you buy them at the right time. In the words of Jesse Livermore "It isn't as important to buy as cheap as possible as it is to buy at the right time."