The Difficulty With Taking Money Off The Table

The other day - when I drafted this post - The WallStreet Journal reported that the Dow climbed to "another record close" and yet, I did not receive any calls from clients to place sell orders. Well, one client came close to selling one position. He called to get a quote on a stock and then said, "aah, I'll let it go up a little..." as if he had control over the price of the security.

One thing I know is that the big investors are rebalancing and the big brokerage houses are selling, taking huge profits, little by little. The individual investors, and the day traders are losing. Why? Because they are sitting watching their little portfolios grow a little, only to see those gains disappear into thin air once the big sell off occurs.

It didn't take long.

I came back tonight to finish this post and looked at the Online Journal and saw a piece in there that opened with, "the three day run of record highs was cut short..." and I knew what the article was about. But I also knew that those investors/clients who merely watched their portfolios grow this year and failed to take some money off the table may never learn. There is a tremendous amount of psychology in investing, in fact so much, that there is a field of study devoted to it; behavioral finance.

Although mixed September jobs reports, GM and profit taking all have pulled down the Dow a little today, if you enjoyed a nice run up and now are looking at losses and/or lost profits, then shame on you! You must find a way to have a sell discipline incorporated into your investment strategy. It is just as important as having a buy strategy. The good news is that I have noticed some clients are taking advantage of automatic programs that force them to rebalance their portfolios.

To think that most of the time when someone is selling their stock, the buyer is a professional, and most of the time when they buy, the seller is a professional is very interesting to me.


I am also thinking about the client who recently bought $30k into a position and within 2 days was down about $4k.

When I researched the stock, I had to tell him that (a) he bought the stock after the good news came out (b) since the stock had no positive earnings history, it was, in my opinion a gamble and a very volatile stock and (c) he should have put a stop-loss order on the thing. This was a self-directed client, who was looking to be bailed out of a position that he got into on his own. Rather than admit to his "big mistake", he ruminated over the problems of real-time trading...(he bought the stock and it traded heavily for two days, costing him over $4,000.)

Buffet and a few of his buddies believe that one should view stocks as probability events; when you have calculated carefully that the odds are favorable, only THEN do you place your bet (as in blackjack). You see this in the game of blackjack, not purely from a gambling standpoint, but from statistical probability. Research the company, the stock, crunch the numbers etc., and then place your bet (make your investment); when the odds of a favorable outcome increase, you increase your bet (increase your investment).

But what do most so called "investors" do?


They do no research. They read yesterday's news. They watch CNBC and trade on what has been reported and buy stocks only after the price has been bidded up, long after the real players have taken up huge positions. Therefore, they end up, quite frankly, working for the players. It's like the movie WallStreet all over again...

I try to avoid giving advice, but I will deviate from that periodically, so here is one instance when I will do so; if you are nearing retirement or if you are in retirement, stop buying stocks! Start reading Bill Gross' commentary!