There’s a big difference between your nephew Billy, the Reddit investor, and the pros.
The pros know when to sell.
It’s true there are some things you Hold On to for Dear Life (HODL). These are stocks in good companies with good managements and good stories to tell. Companies like Amazon or Apple or Microsoft. This is what I’ve now learned from 10 years writing about investments, from the time the ad-based tech news business collapsed, and I got kicked off the beat.
You won’t find the winners right away. But if you’re nibbling on a few big names every month, and if you’re serious about winnowing out the non-performers once a year, the names will emerge. Sometimes, as with Google or Moderna, it seems obvious when they come public. With others, it can take time. You might find yourself selling, then buying, then selling again before you settle on something. I lost money on Apple during the 1990s, because I didn’t buy Steve Jobs’ return as I should have. Amazon didn’t pass its 1999 peak for over a decade.
The lesson of selling is especially important now, with so many young investors getting wrapped up in things like Reddit’s WallStreetBets forum.
I’ve got nothing against WallStreetBets. If you get a gang together to attack a stock (or anything else) you can make it move. Hedge funds do it all the time.
The difference is hedge funds know when to sell. They know when to take profits. They know that if a company is selling far in excess to its real value, they should ring the cash register. Take the win and find a new game.
The smaller the company, the easier the manipulation. I found it today with two companies I wrote about for Investorplace. (Can’t name them. The stories aren’t published yet.) But it was clear what was happening from just looking at the stock charts. You’d see a huge run-up, then an equally fast run down. Whenever you see a stock chart with vertical peaks, especially on a low market cap, you know someone is making money. And it’s not you.
You need to be careful using WallStreetBets. But if you get lucky, and something you found there happens to suddenly double in price, don’t listen to the people saying HODL. Sell. You may miss some of the move up, but you’ll miss all the move down.
Remember. Professional stock traders sit behind multiple screens and are aware of every trade in a stock they’re following. They watch every tick, and when they see two ticks down for each tick up, or even if they see a single large tick down, they take profits.
You don’t have multiple screens and a Bloomberg license. You are a not a Master of the Universe. All you can do is take your profits when you see them, while continuing to slowly accumulate things you know work, checking their fundamentals every year or so to see that they still work. (I warned y’all about GE.)
This system isn’t foolproof. No system is. But if you let time work its magic for you, and play your games as games, with money you can afford to lose, you’ll come up a winner.
