For everything there is a season/A time to seek and a time to lose

The lines above were written by King Solomon who was probably heavily involved in the local stock exchange. Solomon was wise; he understood what change was about when he wrote the Ecclesiastes.
Fast forward to today. The stock exchanges of the world have been through a nightmare and are finally coming out of it. And this is the time that Solomon would define as 'a time to be extra careful'. This is a time when every stock suddenly looks good, a time when every stock is priced within your range, a time when you throw caution to the winds and buy, buy and buy.
In the real gambling world, it is well-known fact that 'chasing losses' is the quickest way to lose your bankroll. It happens to many inexperienced gamblers. They sit down at the roulette or blackjack or any table in the casino and start playing and in a short time they lose their money. Then they grit their teeth and vow to get their losses back. That's when they lose everything. There are many investors who panicked when the market crashed and sold their stocks, incurring losses. Now they see that stocks are on the rise and they vow 'to get their losses back'.
They are buying indiscriminately and may be making gains. But the market hasn't settled down yet and every day is a surprise. The market is also highly sensitive and the slightest rumor sends it spinning one way or the other. This is the time when big profits and big losses are made. And there are the side effects. For instance, investors seem to have developed a sort of mass amnesia and they have forgotten how to protect themselves.
Investors also seem to have lost their healthy sense of skepticism which they acquired - generally at a steep cost - during the bad times. This happens with people forget history: they are doomed to repeat it, and to pay for the lesson again and again.
Certain company managers and owners are aiding and abetting this en-masse memory loss. Let's take a fresh example while it's still in mind - Caterpillar, a maker of heavy machinery for quarrying, mining and construction. Its stock is listed on the prestigious Dow Jones index. Like all companies in its field, Caterpillar's profits have been declining since the end of 2008.
None of that stopped its stock from soaring in the last few months. In the last two months alone its share price rose 50%, from $30 to more than $45. Yet the company's reports indicated a decline in sales and profits. The gains must be based on anticipation of higher profits in the years to come. According to a company presentation, these expectations include $60 billion in sales in 2012 and earnings of $10 to $12 per share.
But back here in 2009 the company's management has no clue as to how their sales and profits will look in 2012. Beware!



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