Taking Gains: Have A System

What's worse than selling some early? Selling all late

The stock market continues on its historic bull run as everything keeps ticking new highs. I even saw some ‘zombie’ names (things I had owned and sold out of but kept 1 share just to track it) which rose from the dead the last few weeks.

We haven’t hit complete frenzy phase yet, but there is definitely a lot more advice of ‘buy, keep buying, then buy some more’ being thrown around.

And if you are an ETF buy & hold guy with a long time line, that can be fine.

However, a lot of people enjoy doing a little individual stock picking. One of the hardest things to do with a name you like is start taking gains as it is moving up.

You like the name

You found it early

The higher price vindicated your reason for buying

Other people and analysts are jumping in and saying it is going higher

You are a stock picking god and will definitely know the exact top to sell

Well, like most things in life, having a system can save you from yourself. 99.9% of people have some sort of emotions:

• An ego that needs feeding

• Emotions about money

• Confirmation Biases (among many)

• Loss aversion

If you have ever taken a rocket up on a stock to a massive gain only to ride it back down and lose it all, and kick yourself for being greedy - you know exactly how this can play out.

If you believe the allegations in this post, to avoid taxes the carpenter was advised to hold a concentrated position in Tesla by the professionals. Up from $80k to $400mm probably called for taking some gains

This news came out earlier in the month and if you read the full article about this carpenter, he basically option traded + longed Tesla from $80k to ~$400 million. When he got to $20 million he sought financial advice. They advised him like he was a high-cash flowing millionaire (tax avoidance through complicated LLCs and charitable donations). Big oof. I saw the headline and said ‘guy is salty’ but after reading it, I kind of am on his side.

Now a 30-yr old budgetpooor gooroo posted about this and somehow used it to justify his ‘buying ETFs’ system.

1. Buying ETFs alone would never have got this carpenter to any notable sum. Sure after he made some ridiculous original gains he could have moved it to ETFs to diversify, but buying the market alone will only give you market returns.

2. Most people already have a decent amount of ETF exposure through 401ks, HSAs, etc and are periodically buying every paycheck. Going for above market gains with a personal account or few can pay off if you find stocks interesting and/or are good at stock picking and/or have a high-risk tolerance.

3. Taking investing advice from anyone under 40 is pretty silly as they have yet to live through a recession or prolonged low return stock market. The last 15ish years the market has been up only. Anyone who wasn’t an adult in the Great Financial Crisis (GFC) of 2007-2009 has only known a world of high market returns and short drops with quick rebounds.

With that intro out of the way, lets talk about why people tend to round-trip and how to avoid it so you can take some gains and set yourself up to some above average returns while keeping the money.