Most people think that good investors are able to buy undervalued companies. People forget that good investors also know when to sell. Take a look at Netflix (NFLX):
Carl Icahn apparently went in at $58/share, and sold half his stake in the $300s.
The headline quote in the media articles:
… as a hardened veteran of seven bear markets I have learned that when you are lucky and/or smart enough to have made a total return of 457 percent in only 14 months it is time to take some of the chips off the table.
I’d say this is a pretty good rule of thumb for anybody to follow if they are so fortunate.
Just as a matter of arithmetic, if you invested $100 in something that went up 457% and then sold half of it, you still have $278.50 worth of something left over, not an insubstantial amount in relation to the original investment. Another way of looking at this is you would have to sell 18% of your investment to play with “house money”, so to speak (although this is a huge misconception in retail finance as there is never such a thing as house money – it is your own!)
I’m thinking of selling off my BMO, RY, CM and simply heading to cash.
The BMO chart is especially steep – $58 to $72 since July.
Things are looking frothy!
Irrational markets can always become more irrational. Try putting your entire networth in an index of AMZN, TSLA and NFLX and see how long you can last!