Can’t tell you how often I’ve done this. My most recent boo boo? India.
The Trend is Your Friend
I bought an India ETF last month as it reversed higher. We were making money and then things got volatile in global markets – so I swapped out the shares for cheap call options on the same index (to avoid large downside loss) and it worked beautifully. We got a nice move up from there. With that backdrop, what did I do? When I saw overall market weakness and desired to reduce “risk,” I sold off the converted shares for an 8-9% gain. Most people would take 8-9% in a month but we need to understand one thing – it’s like Newton’s Law where an object in motion tends to stay in motion. You can often think of a continuing trend as a safer idea than betting on a turn-around.
India was trending up but despite that, I sold it to reduce portfolio “risk.” My alternative was to sell another holding – one that looked “safer” (but might have been trending negative). I mistakenly thought of India as “risky” (because it’s an “emerging market”) and disregarded the changing politics and the strengthening Indian currency which is helping push up a country’s stock market along (the super cheap P/E ratios help too!).
Lessons
In summary, I sold India too soon and missed an additional 5% upside so far. Even though my assessment that the market looked weak seems to be confirmed at this point (action in US indices look choppy and perhaps there;’s some churning going on), India is holding up ok. If the global market continues weak, it’s unlikely that India will stay positive – so perhaps my instinct was correct. However in hindsight, it might have been better to wait for a confirmed end of the uptrend before selling, because who can pick a top? And assets can rise farther than any of us might realize! Therefore, think twice before selling an asset that’s moving up steadily (not wildly).
Important Note: it’s not being greedy to hold on – it’s being smart because you need your big winners to offset your weak performers in any portfolio or trading record.
Selling Too Soon
Can’t tell you how often I’ve done this. My most recent boo boo? India.
The Trend is Your Friend
I bought an India ETF last month as it reversed higher. We were making money and then things got volatile in global markets – so I swapped out the shares for cheap call options on the same index (to avoid large downside loss) and it worked beautifully. We got a nice move up from there. With that backdrop, what did I do? When I saw overall market weakness and desired to reduce “risk,” I sold off the converted shares for an 8-9% gain. Most people would take 8-9% in a month but we need to understand one thing – it’s like Newton’s Law where an object in motion tends to stay in motion. You can often think of a continuing trend as a safer idea than betting on a turn-around.
India was trending up but despite that, I sold it to reduce portfolio “risk.” My alternative was to sell another holding – one that looked “safer” (but might have been trending negative). I mistakenly thought of India as “risky” (because it’s an “emerging market”) and disregarded the changing politics and the strengthening Indian currency which is helping push up a country’s stock market along (the super cheap P/E ratios help too!).
Lessons
In summary, I sold India too soon and missed an additional 5% upside so far. Even though my assessment that the market looked weak seems to be confirmed at this point (action in US indices look choppy and perhaps there;’s some churning going on), India is holding up ok. If the global market continues weak, it’s unlikely that India will stay positive – so perhaps my instinct was correct. However in hindsight, it might have been better to wait for a confirmed end of the uptrend before selling, because who can pick a top? And assets can rise farther than any of us might realize! Therefore, think twice before selling an asset that’s moving up steadily (not wildly).
Important Note: it’s not being greedy to hold on – it’s being smart because you need your big winners to offset your weak performers in any portfolio or trading record.
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About The Author
Chris Grande