Friday, August 26, 2011

Take profits and stop listening to the TV experts

My portfolio reached its highest value in March of this year, within reach of the goal I had set for year end.  I sold a few stocks that had reached the price targets I had set, but didn't sell more because that would have triggered large short-term gains.  I sat back, looked at charts of stocks that had doubled or tripled over recent years, and reflected that I should be holding stocks longer to enjoy the lower tax rate on long-term gains.  Plus most of the experts on CNBC were predicting a move 10% higher by the end of the year.

Then I made the really big mistake of investing in risky stocks I thought could double within a year.  I should have put that money into bonds and protection, although I hadn't learned how to buy protection without buying puts yet.  When my portfolio gets back to where it was in July, I will move 5% into TZA and VXX.  (I don't buy or sell options because I don't want my broker lending my shares out to traders.)

I did move into 10% cash in July because the Tea Party was threatening national debt default.  Once the debt ceiling agreement was signed, I thought we were headed back up and bought stocks.  (I had debated whether to wait until the end of August because the stock market typically takes off at the beginnng of September.)  If I had booked those gains back in March, I could have sold a few stocks at a loss on the way down to raise cash.  I'm not beating myself up too badly and instead trying to learn the rhythm of the markets and perform better in the future.