“What’s the biggest thing your subscribers screw up?” the moderator asked…
“Ah, that’s an easy one,” I thought. “They have no idea when to sell.”
I was on stage in front of 500 attendees at the Sprott-Stansberry Vancouver Natural Resource Symposium last month.
[ad#Google Adsense 336×280-IA]Before I gave my answer, I already knew the mood in the room… I’d already heard a few sob stories from the attendees…
“I’ve lost $6 million in mining stocks,” one retiree told me.
“It’s too late for me to sell now.” I bet he said the same thing when he was down $1 million… then $2 million… then $3 million. He had no idea when to sell.
At this conference, I also talked with Rudi Fronk, the CEO of Seabridge Gold (NYSE: SA).
Seabridge was the best-performing stock recommendation of my career – subscribers who followed my advice to buy in 2005 locked in a 995% profit. It went from around $3 to more than $30 by the time we sold.
The stock ultimately gave back all of its gains… and it’s trading around $4 today. Rudi told me that many attendees at the conference still hold Seabridge from my initial recommendation. They rode it all the way up… and all the way down. Just like the guy who lost $6 million in mining stocks, these folks have no exit strategy…
Look, a great trade is made up of two things… a great buy and a great sell.
Subscribers often take our buy advice… But for some reason, they often don’t sell when we say sell.
That’s fine if you have a different exit strategy than mine that happens to work for you.
But what I’ve learned is, most people have no exit strategy at all… Either they don’t want to sell when they’re up because they think there’s more upside, or they don’t want to cut their losses when they’re down.
As an example, subscribers who followed my buy and sell advice recently pocketed 82% in less than a year on Chinese A-shares through the Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (ASHR). At this conference, I learned that many people did NOT follow my sell advice and did not pocket an 82% gain. Instead, just like with the gold stocks, they held on the way down.
In my newsletter, we sold half of our ASHR trade once we were up 100%. And we sold the other half when we hit our trailing stop for a 63% gain. That netted us an 82% profit.
Importantly, we had two specific exit strategies in place:
1. We sold half when we were up 100%.
2. We used a wide trailing stop that forced us to sell the other half.
I heard over and over at this conference that people didn’t sell their position in China when we said to sell. Those folks did not pocket 82%.
Sometimes “hanging in there and hoping” might work for you… but the problem is, “hanging in there” is not an exit strategy. You are hoping, not investing based on risk and reward.
The day you enter a trade, make sure you know what will cause you to exit that trade. And don’t go against that… If you do, you will always come up with an excuse not to sell.
You don’t have to follow my exit strategy advice – but you’d better have an exit strategy.
Good investing,
Steve
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Source: Daily Wealth