Greedy When Fearful

Locked in gains of 450% and how to NEVER give your gains back to the market (F, EL, LTD, LVMUY.PK)

When most investors “take profits” or “lock-in gains” they are simply selling one stock for a gain and reinvesting the money back into the market for a worse investment. Why do I say worse? Because study after study has shown it’s impossible to time the market, and this strategy fails. That’s why I believe in letting my winners run and my preferred strategy is rebalancing every few years. Warren Buffet says his favorite holding time is “forever” and by going really long you are “getting a tax free loan from the government” while your investment snowballs. Selling too early is the biggest mistake in investing. You simply can’t beat a stock that’s compounding for you tax free. You only pay Uncle Sam when you sell. So, why I am selling? Because unlike a hedge fund manager, I am REALLY locking in gains.

The only way to permanently lock-in gains is to take your profits out of the market.

I know this is obvious, but many people don’t do this! Friends and family aside, I watched my personal Yoda, David Gardner, turn $2,000 into a half a million dollars through his America Online investment, only to lose most of it as America Online became Time Warner which then became obsolete. David learned his lesson though, and he recently bought a house by taking some off the table from Netflix (NYSE: NFLX) and Priceline (NYSE: PCLN). Everything is perfect in the world right now with Netflix and Priceline which is exactly why it’s time to really lock in those gains. When the market goes down again, David’s house won’t be going with it.

I believe in this strategy so much, I’m making it an annual family tradition to take some profits from our biggest winner of the year, and go on vacation with it. I can tell my son, “Disney (NYSE: DIS) is actually paying for our vacation to go to Disneyland!”

I have been working extremely hard over the past two years to hit my current annual return rate of 15%, which really hits home why you shouldn’t invest if you have debt with an APR over 10%. However, I was stupid in my twenties. So, I’m locking in these gains to pay off some high interest debt and to take my wife out to celebrate. She did just pick three triple-baggers in a row with the very Lynch-esque strategy of “Buying the stocks of the companies women were holding the bags of in the malls” during the great recession.

The GOP just took the house and the Fed is about to pump gold into the veins of the economy. Economy solved! What could go wrong?

I like to browse the NYSE 52 week low list for potential buy opportunities and I like to browse the 52 week high list for potential sell opportunities. As Jim Cramer puts it, “selling into strength.” Lately Mr. Market is Arnold Schwarzenegger. Here is how I really locked in gains of up to 450%.

11/3/2010. Sold entire Ford (NYSE: F) position @ 14.61 as it hit a new 52 week high and locked in a 450% gain. From the advice of my other Jedi Master Peter Lynch, “The best time to sell a turnaround is after it’s turned around.” In One Up On Wallstreet he even talks about Ford as a turnaround play, and this was in 1989! We’ve seen this movie before. With CEO Alan Mulally at the helm, I actually think Ford is going to beat it’s all time high of $37 within the next 5 years, he is doing an amazing job. But, that’s going to require a perfect economy. The easy money has been made here, and I’m looking for the next Ford. Maybe Tesla (TSLA) or BYD (OTC: BYDDY.PK)?

10/28/2010. Sold Estee Lauder (NYSE: EL) @ $73.31 after earnings blew out expectations with strong guidance and it hit a new 52 week high rising 14% in just one day. I locked in a 194% gain. Women are buying lots of makeup and skin care products in Europe and the Middle East! This is the highest the stock has EVER been (public since 1995). I sold entire position. Since this stock yields a dividend of .80%, I’ll eventually buy this again, on weakness, but this time it will be a much larger position and be in my Roth-IRA for tax free compounding.  

10/07/2010. Sold Limited Brands (NYSE: LTD) @ $28.55 as it hit a new 52 week high (even though the overall market was down) thanks to a strong back-to-school season (triple than what they expected) and locked in a 225% gain (not including dividends). Hasn’t been this high since November 2006 and has only been this high twice in the history of the company (over 30 years!) I sold entire position since this stock yields a dividend of 2.17%. I’ll eventually buy this again, on weakness, but this time it will be a much larger position and be in my Roth-IRA for tax free compounding.  

8/2/2010. Sold LVMH Moet Hennessy Louis Vuitton (OTC: LVMUY.PK) @ $25.00 as it hit a new 52 week high and locked in 100% gain. I sold entire position since this stock yields a dividend of 2.59%. I’ll eventually buy this again, on weakness, but this time it will be a much larger position and be in my Roth-IRA for tax free compounding.  

As always, you can see all of my buy/sells here. Cheers!

Monty