Nailing the Dismount

I have been thinking about this a lot. I have owned gold since 2005. Unlike a lot of gold bugs, I don’t plan to hold it forever. I do think there is going to be a time to sell.

So, the question is: When do you sell?

One possible answer is when you are going around bragging about how much you are making. Another possible answer is when you feel best about the position. Yet another possible answer is technical analysis. Or, perhaps, when the fundamental bull case is most compelling.

As you can tell, I spend a lot of time thinking about when to sell things because the decision of when to sell something is infinitely harder than the decision of when to buy something. How do you know when to buy something? When you feel the urge. When you get a tip. When you read some interesting research. When you’ve been staring at it for a while and finally capitulate and just buy it. But the point is that there isn’t a lot of analysis as to when you buy a stock. You just buy it.

Selling it, on the other hand, is a different story because most people have fear of future regret. The last thing they want to do is sell something and watch it go up another 20%. So, they hold on too long and end up selling it down 20%. I want you to lose your fear of future regret. Sell something, take it off your screen, and don’t look at it again. Of course, you will look at it again, but try not to. Really, what you need to do is work on your emotions. Once you sell something, wash your hands of it, and the result is not up to you.

Sometimes you sell something because you simply make enough money.

Move on to the Next Trade

I’ve done that before. I sell stuff too early all the time. I took a big gain out of Philip Morris’s stock recently, made enough money, sold it, and then the stock went up another 50 bucks. I DON’T CARE. I sold it, took the gains, and moved on to the next trade, and some of those other next trades have been pretty good. 

And another thing: Some people never sell stuff because they don’t want to pay taxes. Pay your taxes, you tax cheats. Taxes are the reward for making a good trade. I’ve known so many people who refused to sell for tax reasons and then did the round trip on the stock and ended up back where they started. As a general rule, I don’t let taxes factor into my investment decisions very much. Warren Buffett would disapprove.

Of course, you do have some grandmas and grandpas out there who pick stocks and sit on them for 30 years, and the stocks go up forever, and they are pretty happy. Grandma and Grandpa own Microsoft and Apple. There has never been a reason to sell. Word to the wise: Even Microsoft and Apple will go down someday. Yes, they will. They might even go out of business. That might be 100 years from now, but if you look at what companies were in the Dow 100 years ago, they are all gone. Everything goes to zero eventually; the only question is whether it is going to go to zero while you hold it. 

So, say you’re 40 years old. Will Apple be around when you’re 70? Errrr, maybe. Maybe not. Is there anything out there that you’d be willing to hold forever?

Live with the Decision

The answer to that question is “no,” including bitcoin. I’ve owned bitcoin before (I don’t at the moment), but I do currently own gold, and I can tell you that if I had an investing time horizon of 100 years, I would rather own gold than bitcoin. Bitcoin faces obsolescence. Technological obsolescence, by quantum computing or something else. It’s just a game of musical chairs until that day comes. So yeah, if you hold any form of crypto, don’t get too comfortable. I think most crypto investors think short term, anyway.

But the goal is to nail the dismount. The goal is to sell the top tick and walk off a hero. I have only done that once in my life—with Lehman stock! I had some restricted stock units (RSUs) vest in 2007, sold them immediately, and ended up getting within a penny or two of the all-time high. 

So, if you sell the top tick, it will probably be an accident—you won’t even be trying. A lot of it comes down to luck. But whatever happens, you have to be secure in your decision, and don’t Monday-morning quarterback it. You make the decision, you live with the decision, and you move on. The guys who sold Instagram to Facebook for a billion probably want to throw themselves off a bridge, right? Now it’s worth a trillion. My guess is they are pretty happy.

Jared Dillian, MFA

P.S. This is it. Last call on charter membership to Heartland Investor. At midnight, the doors slam shut. I mean, you can still get in after today, but the price jumps to $1,495. Right now, it’s just $495. Your call, but if you’ve been thinking about joining, save yourself the grand. The first four picks are now live in the portfolio. Let it rip.