WHEN PEOPLE say, "Guess what stock I just bought?" I usually respond, "I'd rather know what you sold." And I generally get a blank stare in return.
Instead of buying at this lofty level -- in 14 years the Dow has risen nearly 6,000 points -- have you considered some selling?
Barron's, Feb. 3, says that Joseph P. Kennedy, a highly successful investor, began to exit the market when his shoeshine man talked stock strategies in 1929, weeks before the September top.
And the New Yorker, Feb. 10, states, "Between September 1929, and March 1933, the Dow Jones industrial average fell 80 percent and stocks didn't reach their 1929 levels again until the mid-1950s."
To preserve paper profits, meet with your broker to discuss reducing large holdings, stocks with exorbitant price-to-earnings ratios or low dividend yields.
Most people hate to sell stocks that are shooting up, but remember that your emotions are the best "reverse indicator" of what you should do.
Many brokers quote the old maxim, "You never go broke taking a profit."
But if you won't take that profit, make your next buy a safe investment like the new Treasury inflation-indexed notes. They mature in 10 years, come in $1,000 minimums and provide insurance against an unexpected inflation surge.
The notes aren't for people who need income -- the coupon rate is only 3.375 percent, subject annually to federal income tax -- but the principal rises with inflation.
And although inflation is dormant now, remember the old proverb, "Just because the river is quiet doesn't mean all the crocodiles have left."
One Wall Street veteran adds, "Think of the new notes as buying flood insurance during a drought."
You may buy the notes by opening a free "U.S. Treasury Direct" account, which automatically deposits interest and principal in your bank account. Call 202-874-4000 for details.
Other conservative buys include real estate investment trusts, utility stocks and tax-free municipal bonds.
SAFETY FIRST: "Sometimes your best investments are the ones you don't make." (Donald Trump.)
"There is nothing wrong with cash. It gives you time to think." (Robert Prechter Jr.)
"If you don't know who you are, the stock market is an expensive place to find out." (Jesse Livermore.)
"In the stock market, one in the hand is worth 10 in the bush." (Peter Lynch, "One Up on Wall Street.")
Pub Date: 2/07/97