Why We're Selling Half of China Stocks Today
Stock-Markets / Chinese Stock Market Jun 08, 2015 - 03:21 PM GMTBy: DailyWealth
Dr. Steve Sjuggerud writes: A huge announcement about Chinese stocks is coming tomorrow night...
On June 9, shortly after 5 p.m. ET, MSCI – the world's leading provider of global stock market indexes – will announce whether or not China will start to be included in its indexes.
Even if MSCI doesn't approve China tomorrow, it will sometime soon. And this will ultimately cause hundreds of billions of dollars to flow into Chinese stocks over the next couple years.
But right now, we're selling half of our position in our top China holding in my True Wealth letter.
Why would we sell half of our top China recommendation in True Wealth when we are confident hundreds of billions of dollars will ultimately flow into Chinese stocks?
Let me explain...
You might guess we're "buying the rumor, and selling the news." That's a classic money-making Wall Street secret.
"Buy the rumor, sell the news" will probably work this time... Chinese stocks have been soaring in advance of tomorrow's announcement. It would be natural for Chinese stocks to take a bit of a breather when the news finally comes out (regardless of what it actually is).
But that's NOT what we're doing...
Our decision to sell half of our position has nothing to do with the big news coming tomorrow. Instead, our decision to sell half was made when we entered this trade in the October 2014 issue of True Wealth. Here is exactly what I wrote at the end of my China story (to be fair to my True Wealth subscribers, I've taken out the name of the fund):
Buy [fund] today, and sell half once you're up 100%. Plan to be in this trade for about two years.
I can't promise a 600%-plus gain like we saw the last time the Chinese government pushed stock prices higher... But [fund] shares offer us the best chance for triple-digit gains in the world today...
We're now up more than 100% in less than nine months. It has been an incredible move. So, it's time to follow our original advice and sell half our position.
You might be wondering what the point of selling half is.
Think about this... If you were fortunate enough to turn $10,000 into $20,000, and you sell half, then you are immediately pocketing $10,000. Doing this does a couple things:
1. You've gotten your entire initial investment back. (You've "marked to pocket" as I say.)
2. You've lowered your risk.
3. You are still letting your winner ride. The upside potential could still be substantial in whatever investment you're holding. But at this point, you're somewhat rolling on "the house's money."
In short, selling half once you're up 100% is really about:
1. Pocketing big gains. (It ain't a great trade until you've pocketed it.)
2. Controlling risk – but still having upside.
3. Taking your emotions out of the trade.
Selling half when you're up 100% is especially valuable for non-professional traders – where emotions can often get the best of them. (Don't get me wrong, professional traders get crushed by trading on emotion too.)
In short, if you're up 100% in any stock, you ought to consider selling half your position. You get 100% of your initial investment out, you reduce your risk, and you're still onboard with upside potential.
I almost always sell half once I'm up 100% in a position. You should consider doing the same.
Good investing,
Steve
P.S. China's moving up the ranks of global power faster than most folks believe. And there's an announcement coming in October that will catapult China to even greater global importance. If you make the right investments today, you could profit enormously over the next few years. I recently put together a free presentation to explain the full story of what's happening in China right now. I urge you to check it out here.
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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