Jan

2

"It is not your money until you sell it" is one of the few tried and true maxims that have withstood the test of time. The other one I have found useful is, "there are great companies and great stocks, and they are not necessarily coincident in time."

The values on brokerage statements or mutual fund reports are a snapshot in time. More importantly, they are merely numbers, although they do reflect real dollars. Until they are converted to dollars the prices are truly ephemeral and deceptive. As investors, we need to be reminded of this.

In July 2007 I sold some shares of Merrill Lynch at $93 per share. This price was right near the all-time high for the stock. I had held the shares long term, therefore there was no reason to continue holding it any longer for tax reasons. Long-term tax is the lowest tax that an individual can hope to pay. I made a conscious decision to sell the shares. In retrospect, I am very happy with my decision. The stock is in the $52 range six months later.

In late 1999, share prices for MSFT, CSCO, ORCL were astronomical. Cisco was priced at $80, Oracle at $45 and Microsoft at $60. These three carried the NASDAQ market for the balance of 1999 and since then the share prices have totally collapsed. Seven years later and they have yet to even come close to their prices back then. JDS Uniphase was priced at approximately $140 per share, falling precipitously to under a $1.

Fast forward to today and the three major stocks that have carried the NASDAQ through 2007 are Google, Apple and Research in Motion. Each is at an all-time high. Without the Big Three, the NASDAQ index would be far lower.

When we step up to a table game, be it blackjack, roulette, poker or baccarat, we immediately convert our dollars into chips. That is for several reasons. The first is convenience. It is far easier to bet chips than it is to bet money. Once the money is converted to chips we tend to lose sight of the fact that we are wagering real money. Psychologically, it becomes play money. In fact, a common phrase in a casino is "I am just passing chips around." Now when we are finished with our gaming session, if we want to cash in our chips, the cashier is invariable located at the far back of the casino. After we cash our chips into money again, we now have to pass by all the gaming tables and roulette machines before we get to the restaurants, the performing hall, or our room. This allows us plenty of opportunity to spend those dollars on other games of chance.

Yes whether one trades stocks, bonds, futures, or forex, one needs to always keep in mind is the price is good for only that point in time and that until you sell those shares or contracts, it is not your money.


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4 Comments so far

  1. Edwin Hoyle on January 2, 2008 4:02 pm

    Is this supposed to have any content at all, beyond “I sold Merrill at the all time high.”?

  2. steve leslie on January 3, 2008 9:47 am

    after thirty years of investing in stocks and 15 years of gambling, my points are that I had friends and clients forego lots of money by not taking profits when they were there for the taking.

    Secondly I have had many clients not sell a stock because they did not want to pay taxes and see the price of stocks decline. Then they ultimately sold it at a loss.

    Third, there are plenty of catchword phrases that are completely useless to the investor like you never sell a good stock.

    Fourth, I have witnessed people gamble away profits and then their mortgage payments and food money for their children by forgetting that gambling chips represent money.

    Finally, after 24 years of advising clients in investing I have seen some of the most ridiculous things done because they lost sight of the fact that numbers on a brokerage statement were more than numbers.

    I have attached a column from Motley Fool that is worth the read.

    Regards,

    sl
    http://www.fool.com/investing/mutual-funds/2008/01/02/resolve-to-invest-smarter.aspx

  3. Edwin Hoyle on January 3, 2008 2:11 pm

    Steve Leslie, January 2, 2008
    “..there are plenty of catchword phrases that are completely useless to the investor like you never sell a good stock.”

    Steve Leslie, July 23, 2007
    “..the speculator should be willing to hold on, eschewing the quick buck in search of the really big gains that can be achieved through diligence and patience.”

  4. steve leslie on January 3, 2008 5:03 pm

    my statements are not contradictory. there are times to sell and there are times to hold. Diligence and patience does not mean never selling. The key word is never.

    trading stocks are a combination of art and science. hard and fast rules don’t always apply. It is not easy to trade stocks but of course you know that.

    But as I have said there is a certain way how I do things. plenty of others do it other ways and that is fine. That is what makes markets.

    In the end the goal is to make money. Then again you know that too.

    That is what makes markets.

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