My Portfolio has never been anywhere close to being this high in value.
I have very significant unrealised gains (ranging between 200%- 620%) in AMD, ARM, ANET, CRWD and some others.
With so much uncertainty in the geo-political space (Middle East), I feel that a big readjustment is almost certain to happen. So, should I sell some of my portfolio now, bank the cash, wait for the downturn and then buy back in?
I am 73 yrs young and consider my investment window to be +/- 5 years.
Geopolitics is a big, loud bark and has very little bite. So that should not be the reason.
Let me talk about a name I am familiar with $CRWD. The move in $CRWD is stunning. One could have made argument that it was always expensive since they came public. I have routinely trimmed that position and at one point gave up and decided to hold. Because I am an idiot and bored, I sold $750 calls against my shares on May 8th for $22.5 and as of last night close it is $173.55.
So, when the markets are rallying, you have no idea how long they will go. So the right approach is ride with the rally and after the rally fails sell or in a colorful language shoot them in the back. While you may feel oh my god I missed the top 10%, but backtests shows most of the sales are premature.
Having said that, what works for a money manager or someone else, may not be the right solution for you. So if you are worried, take some money off the table. Always consider the tax consequences.
Depends on a number of things: how much you have invested overall; how much “some” is (1/2, 1/4, 1/10?) and, of course, what kind of tax bite you’ll have. Depending on when you bought and if that gain is a lot, maybe sell the portion that represents your initial investment and hold the rest. Peace of mind against loss, that one.
You could also set some trailing stops and let it run. That way, you protect your gains but are not forced to sit in cash or alternative investments indefinitely while you wait to a correction that may never come.
Most people sell too soon. Better to keep an eye on things but let your winners run.
Volatility usually trips stop loss fairly soon. Better to sell part to cover your cost. Then you are playing w other people’s money. (But usually you will regret selling too soon.)
You seem to be into market timing. Difficult to get it right.
It’s certainly ok to take profits. Think about when you will invest again.
Best to wait for a down trend (unless you own high PE or very speculative stocks). Rapid crashes are rare. Usually you have plenty of time to decide when to sell.
Yeah I vote for trailing stops. You are happy with what you got, right?
The downsides to trailing stops don’t outweigh the benefits . . . for now.
I am not giving investing advice mind you. I come from a history of incredible losses I could have saved with a 5% or 6% trailing stop. Incredible losses.
There is validity to this, but when you have achieved all the gain you expected to achieve, it seems wise to protect that gain.
I have both bad and good experience with this myself recently. I placed a 5% trailing stop loss on three positions last month. 1 did not trigger at all and that position was down 4.5% before it recovered and hit a new ATH today. 1 did trigger and the position continued to fall. I eventually got back in but at a higher price than I got out - so it cost me about 2% gain on that position. The last one did not trigger - but only because it lost so much in one day that my limit number never triggered. I removed the stop and It eventually climbed back to a new ATH as well.
Long story short, I lost gains due to my stop losses (and may have lost more if the other two triggered), but at the same time, I would have been one happy pig if all 3 had triggered and the market continued to fall. For me, stop losses are not unlike buying a Put. I can pay for the insurance upfront with a Put or I can give back some of my gains with a stop loss.
Hawkwin
Who remains aggressively invested only because he is greedy and can afford to lose some of what he has gained this year.
Normally I would say “roll them and wait for a downdraft to exit the position”, but looking at the chart of that stock makes me think there may never be a downdraft! What an asymptotic chart, wow.
Many years ago, a guy I know that worked on Wall Street called them “lock loss” trades because they lock in your loss.
It has lots of time… Jan 27… who knows what happens… Well, anyways I am looking for some short-term losses, so when I roll this, which I will, that will become short-term loss, and when I let the shares go the premium is added to the stock and becomes long-term capital gains… so
In any case, it is a 15 bagger, yeah I will be crying for few weeks
But they don’t when used to protect a gain. I would much rather protect a 20% YTD gain (when the investment is sitting at 25% YTD) that I am happy with that run the real risk of that gain going entirely away.
That was the case where the one triggered. I locked in a 20% gain through late May. I can’t be unhappy about that.
I never use them on a brand new position. If I am not confident enough to make the initial purchase without a net then I should not make the purchase.
90% of my worst decisions are because of the above mentality. It is not the failure of my investment decision, but “lock the gains” mentality is the worst enemy of my investment returns and gains.
I can say that I have been wrong more often then when I have been right - but then it only takes one major time being right - like last year, right before Liberation Day, when I cashed in EVERYTHING to protect my gains - and then repurchased near the bottom. Last year was my best year ever due to that decision.
Look, I don’t have to have the best possible return. I am quite happy to have above average returns. If I can make 30% when the market is up 15%, then I can walk away happy even if it means I somehow leave another 5% on the table. I don’t sweat what “could have been” when what I have is “more than enough.” YMMV.
I know, I am living there too.. but the backtest is telling me my approach is wrong. It is time we learn to grow out of ourselves. Don’t take one lucky incidence as the right approach.
Of course, it is your money, your emotions, you need to live with it. I get that.
How do you feel about re-balancing in this situation. It causes you to take some profits and put more into the slower parts of your portfolio. Gives you a bit of diversification.
Agreed, but I am not just basing it on being really right that one time. As stated previously, I have been wrong more often than I have been right. These are also not tools to be utilized during all market cycles. The vast majority of the time I don’t use them.
Let’s try a little thought experiment.
Let’s go back in time to January 1, 2022. You are an aggressive investor and you enjoyed an above average return in 2020, even with Covid, and you had an even better year in 2021 when the S&P had a nearly 2 standard deviation return (over 26%) - even though inflation had been climbing since March of that year.
You are worried. You think that both the stock and the bond market are about to suffer due to the inflation. Supply chains are still constrained, and the fed is stuck on “transitory.”
You have the following choices:
Stay invested with no net - that is what I did BTW.
Go to cash or otherwise get out of your existing aggressive investments.
Buy puts to provide some insurance against losses.
Or add some trailing stops - what I think would have been the most informed choice at the time - obviously not knowing how bad it was going to be for most investments.
For the benefit of other readers, the S&P500 peaked on January 3rd of 2022 and lost 18% over the rest of that year. It did not regain that peak until January 19th, 2024 - even though the market gained over 24% in 2023. 2022 was also the worst year on record for the bond market.
Hawkwin
Who surmises his net worth would be about double today if he employed tailing stops in 2022, coupled with buying back in at a reasonable price in 2023.
Hi. First things first. This is a great problem to have.
The market can stay irrational and overpriced much longer than you think.
If you sell today, and AMD or ARM rally another 40% over the next year on AI infrastructure demand, the psychological pain of missing out might prevent you from ever buying back in. At 73, you deserve to actually enjoy and secure that wealth.
Yeah, market timing is really just gambling. I’ve used trailing stops in the past. Sometimes it saved me, and sometimes I got “whipsawed”. Probably more the latter than the former. Except for one speculative stock, I’m pretty much in slow growers. COST, for example, has been a consistent juggernaut. VISA is surprisingly flat, but I’m still up. Etc. I don’t know what’s going to happen, so I look for changes in companies. Not guesses as to what global markets, and various governments, will do.
If I was older and didn’t really need growth anymore, I’d probably sell and take my profits, and then ladder some CDs. I’m probably a few years away from that, but I’ve already started keeping a large cash cushion since I retired (and am not yet on SS or Medicare). So, I’m not compelled to sell anything I don’t want to meet expenses. I’m going to start taking some out of my regular IRAs, remaining below the cap gains threshold for ordinary income, so that my eventual RMDs hopefully won’t be big enough to bump me into a new tax bracket with my SS payments.
I don’t claim to be a wizard. But what I’ve been doing works well enough. I don’t plan to change strategy to market timing / gambling.
Thank you all for your valuable inputs and opinions. I really appreciate the time you have taken to respond. It is true that I am lucky to have such a problem. I also considered that with the recent gains, I had become too heavily invested in AMD (15%) and ANET (10%) of my portfolio. So I did a little trimming to bring them down to currently 10.5% and 8.7% respectively. Of course, both have since increased but I can accept that. I now have a better cash position to use for upcoming IPOs or extending my positions in others that I believe are undervalued eg. MSFT . I also like the idea of Trailing Stop Loss orders but unfortunately the DEGIRO platform does not offer the feature on the NSY or NDQ exchanges. Once again, thank you all.
