Holding Through the Peak Vs Selling Early
It’s always tough seeing your profits disappear. But seeing your investments peak and then retract is still better than taking the quick an easy profits. Quite a few people have sold off their investments as weedstocks have gone up exponentially. Don’t get me wrong, selling during a big run up could be a great move, the question is… when to sell?
Let’s look at the recent marijuana index chart.
Say you have been invested in the sector for a long time. The sector rallys from 250 up to 450 (#1) This would be an 80% return. You could sell all you investments and walk away with a very good return.
Say you hold even longer, the sector is now up to 600, a 140% return. Can’t beat that, sell it all! Wait if you held just a bit longer you could reach 1000, a 300% return on your investment.
Of course looking at this chart, it’s obvious the best move would be to sell all our assets at #3. But it is pretty much impossible to know when the peak is going to happen… as we are riding up this chart, #1 or #2 could easily have been the peak. You don’t know what the peak is until it has passed you by, or everyone would sell at the peak.
There are some options to help riding through the market cycles. Either option could work in your favor depending on the market and your investing style. Dollar cost averaging might help you sleep better at knight, knowing you have taken some profits. Holding long term and not even looking at your account might also be your style. (Wish I could just not look, would help take the emotion out of it)
Dollar Cost Averaging
A good option which I haven’t been doing is DCA. If you feel the growth is too much at #1, you sell 5% of your holdings. If it turns out to be a peak, you can be happy taking some profits at the peak. You could also reinvest those profits as the prices come back down.
If the market continues to ride higher, sell some more at #2. No way it can go any higher… but if it does you still have 80-90% of your investment in the market.
If you sell again at #3, you would have taken some profits of the absolute peak. Well done! Now that the market has retracted you can buy back in a lower price depending on your strategy.
This strategy works as it allows you to still have most of your investment in the market to ride the cycle. It could also mean selling at the peak of the market which is great. I use DCA as a buying strategy, I really need to start doing more of it for selling.
My plan is to hold long-term, this allows me to ride through #1/2 without being tempted to sell. (Ok, I was still tempted but fought the temptation) I know that I can’t time the peak of the market. Getting to #4 is still better than selling at 1 or 2.
Over the long-term, the sector should continue to grow, the stocks retracting to 1 or 2 could happen, but not likely over the long run. The short-term, the market could correct that low, but I’m more interested in the long-term growth.
Real life example
My account has basically retracted about 160k from the peak, it hurts yes. But lets say I didn’t ride all the way to the peak, and sold at #1. That could have meant selling at the 300k mark, which would mean I cashed out 260k earlier than what my account sits at now.
Lets say I sold all my holdings at #2, that would have correlated to 450k. I continued to hold and rode all the way up to 700k. It sucks that the market retracted back down, but I now sit around 560k. So holding through the peak has still managed to increase my account by 100k vs selling early.
The main difference between holding through the peak vs selling too early, if I had sold early it would cost me a lot of money to get back to my original investments. (buying back in at higher level) Whereas seeing a retraction, I am still full invested in the sector with my original amount and don’t have to put more capital in to get the same amount of shares.
I would rather ride through the peak and if I’m at my goal after the retraction I could then sell. If I happened to have reached my goal while at the peak, yes I could have sold it all, but that would basically be my exit strategy kicking in.
So what is worse, seeing my account retract a bit, or selling way to early and losing out on even more money.