How selling to lock in a 40% profit turned out to be a mistake of truly epic proportions

Just when you thought markets were going nowhere

Overnight, the Dow jumped higher with energy shares leading the gains after oil prices climbed to their highest close since July 2015.

The Nasdaq also surged higher, with gains in Apple and Google shares coming at the expense of Samsung’s ongoing Galaxy Note 7 recall.

Here in Australia, the S&P/ASX 200 Index has followed suit, closing in on 5,500.

It’s a far cry from its February 2016 low of close to 4,700, when oil prices were as low as $US27 a barrel and those ‘geniuses’ at Royal Bank of Scotland advised us to “sell everything.”

Fear is evaporating.

The fear of a Trump presidency has been virtually extinguished, thankfully. The US election is now only four weeks away, thankfully.

The fear of a market crash is fading as investors now fully accept US interest rates will rise, most likely in December. No more temper tantrums.

Commodity prices have recovered. Mining stocks are on fire. BHP Billiton  (ASX: BHP) shares edge ever closer to my target sell price of $25, now trading at $23.65. Less than 6% to go…

It was less than two months ago when I boldly announced I’d sell my BHP shares if they hit $25.

And it was just three weeks ago when I publicly swore off mining stocks for life.

‘Life’ is a really long time, hopefully. And $25 is getting really close.

Does anyone detect a Mike Baird-esque backflip ahead for me on selling BHP at $25 and on my fatwa on mining stocks?

Maybe. But not now.

Sure, mining stocks may have further to run, and the BHP share price may hit $27.50 or even $30 in relatively short order.

But the time to buy mining stocks remains when the days are darkest… like they were in January this year, when BHP shares traded around $14.

Like most, I missed BHP buying at $14. It’s easy to say you’ll buy when commodity prices are through the floor. It’s incredibly difficult to pull the trigger.

Still, I do know at least one person who was a buyer.

A friend of mine bought BHP shares in January, paying around $15. Genius. He sold them in March for $18, locking in a quick 20% gain. Nice.

But not as nice as the 60% gain he could have been sitting on had he held his BHP shares all the way through until today.

And therein lies the lot of the mining stock investor. It’s all about the timing. Get it right and you’re a genius. Get it wrong, and you’ve smoked a few thousand dollars, again.

I’ve never been any good at timing, especially when it comes to selling.

I sell too late.

I sell too early.

Just to be clear, I’m not talking about selling at the absolute peak. Doing so is nothing more than luck.

By far my biggest mistakes have been because I’ve sold too soon.

I’ve become impatient. I’ve sold out after one bad earnings report. I’ve sold out on valuation concerns.

A case in point is aerial imagery small-cap Nearmap (ASX: NEA), an active recommendation for our Motley Fool Hidden Gems service. I sold my holding in January this year after I became concerned about their growth rate, and their foray into the very competitive US market.

Fast forward to today, and since I sold, Nearmap shares have gained 90%. Silly me.

Another case in point is Domino’s Pizza (ASX: DMP), an early recommendation for our Motley Fool Share Advisor service. After the stock had quickly run up in price, we recommended members sell their shares, locking in a 40% profit in just seven months.

Not bad…. until you look back and realise Domino’s Pizza shares have risenanother 400% since that fateful sell call.

Silly, silly, silly… a mistake of truly epic proportions.

At least we’ve learned from that monumental mistake, by letting stocks like Corporate Travel Management (ASX: CTD) run for more than 700% gains, and Integrated Research (ASX: IRI) run for more than 500% gains, and still counting.

No wonder then the average gain on all Motley Fool Share Advisor ASX recommendations is 60%, soundly out-performing the All Ordinaries, both with dividends included.

The motto of the story is clear. Let your winners run.

Let your winners run even when it hurts.

Hurting means when the valuation is at nose-bleed levels… like it was with Domino’s Pizza when we sold, 400% ago!

Hurting means holding on even when one position becomes uncomfortably large in your portfolio.

Rich lists are dominated by people with most of their wealth in just one company in just one industry.

Gates. Bezos. Triguboff. Rinehart. Pratt. Lowy. Teoh. Neilson.

Winners keep winning. Selling at the top is impossible. Time is the friend of high quality business.

Warren Buffett‘s preferred holding period is forever.

That said, very few companies are forever stocks. For Buffett, he counts Coca-Cola, American Express, Wells Fargo and IBM amongst his forever stocks.

Not that it has all been plain sailing over the years.

Coca Cola shares today trade at the same level they were back in 1998.

Wells Fargo is going through a well-publicised ‘ghost accounts’ scandal right now, the stock falling 17% so far in 2016.

So far at least, IBM has been a poor investment for Buffett.

Still, Buffett’s net wealth today stands at $US65 billion.

Not a bad advertisement for never selling. For buy and hold investing. And for letting your winners run.


Motley Fool General Manager Bruce Jackson has positions in Apple, Google, Corporate Travel, BHP and Wells Fargo. The Motley Fool Australia owns shares of Corporate Travel Management Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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