If you’ve ever bought shares, visited a casino or placed a bet, at least once in your life you have been in a position to take profit off the table.
When presented with this opportunity, what is your thought process for deciding when to take profits, or to leave it all on the table?
After first buying my gold and silver mining stocks in 2017, earlier this week I took profits and I’ll explain why.
Why did I take profits?
I sold 10% of my holdings in my gold and silver mining stocks.
I didn’t take profits from my gold miners because I wanted to spend the money on something nice like a car, clothes or holiday.
I took profits because I wanted to reduce risk.
I’ve made a big gain relative to my investment and while I think this position has room to go higher, I want to reduce my position.
Why sell if you think it’s going higher?Person reading this article
Because it doesn’t matter what I think.
Just because I think it’s going higher, does not mean it will go higher.
It’s important not to fall in love with your investments and create a bias, that can cloud your judgement.
We all know someone who bought Bitcoin and didn’t sell at the $20,000 peak and then held it all the way down to $3,000 crying.
I don’t want to be that guy.
My gold stocks made a very big move and are at their highest level in almost a decade, if I don’t take some profits here, when?
Where is the risk?
The main reason I wanted to close out some of my position was because the gold miners bullish percent index (BPGDM) hit 100 this week.
The BPGDM is an indicator from 0-100 showing the percent of stocks in a sector (in this case gold) that are showing bullish chart patterns. The BPGDM shows when stocks are oversold and overbought.
This week the BPGDM reached 100, meaning every stock in the sector is bullish.
The BPGDM cannot go any higher as it measures from 0-100, whenever these charts hit 100 there is usually some sort of corrective phase.
It can stay at 100 for quite a while, but the longer it stays at elevated levels, the bigger the fall.
Be fearful when others are greedy and greedy when others are fearfulWarren Buffet
If there is a correction, I will most likely re-add to my position at a lower price than if I sold for, and if there is no correction I’ve still got skin in the game to enjoy more upside potential.
Another reason I wanted to take risk off the table is because gold is entering main stream news sites, this is a sign that the currently short-term rally may be peaking.
As I pointed out in my Bloomberg Vs Financial Times article, when mainstream sites are pushing a stock or in this case gold, it usually means the current rally is coming to a end as retail investors buy the top and ride it down.
If over the coming weeks gold moves higher, I may shave off another 5-10% to lower risk.
Have a question? Then leave a comment below.