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If You're Thinking About Buying Stocks Now, Stop!

NEW YORK ( TheStreet) -- As I pointed out in my last article, there is a palpable anxiety afflicting investors who haven't benefited from this year's rally. Based on market action during the first two days of this week, it's clear their worries are overpowering those of investors who want to protect their profits.

Those who have been on the sidelines are now in a process of capitulation. They see the S&P 500 (^GSPC), Dow Jones Industrials (^DJIA) and Nasdaq (^IXIC) rising and they say: "I can't take this anymore!"

If you find yourself in this situation, heed my warning: If you buy stocks now, there is no hope for you.

Investing Is a Craft That Requires More Emotional Than Logical Resources

Let me be clear: Stocks will probably rise further from current levels.

Stocks are not expensive now; they are actually well within ranges considered to be "normal" by historical standards, if we look at price-to-earnings ratios based on trailing earnings, forward earnings and even properly constructed estimates of normalized earnings. In addition, despite some recent hiccups, medium-term economic fundamentals in the U.S. are actually improving, and the economy could be growing by over 3% by the end of 2013.

Furthermore, most technical indicators suggest that the market is in the midst of a prolonged uptrend.

So why do I say that there is no hope for sidelined investors who buy stocks now?

It has nothing to do with their analysis of fundamental or technical indicators. It has to do with their emotional endowment.

You see, successful investing is not just about the ability to rationally analyze fundamental and technical indicators. Success in investing has more to do with certain emotional traits and skills. For example, the ability to: A) Not sell when seemingly everybody else is selling and every fiber of your body is screaming at you to sell whatever you can before it is too late. B) Not buy when seemingly everybody else is buying and every fiber of your body is screaming at you to buy before it is too late.
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SPY $200.18 -0.66%
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Chart of I:DJI
DOW 17,081.89 -49.97 -0.29%
S&P 500 2,014.89 +15.91 0.80%
NASDAQ 4,796.6090 -42.0340 -0.87%

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