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When Should I Sell, MMM 3-21-2011


Monday Morning Message, March 21, 2011

Many people believe that our investing lives parallel all of our lives in that each day brings new challenges and the dynamics of decision making cannot be predicted.  I recently engaged in a discussion about why advisors don’t tell the clients to sell everything on days like we just experienced with the Japanese tsunami.  We all know that if you can avoid downside losses in your portfolio, you don’t have to fight the uphill battle to make up for them going forward.  (Also assumes you know when to get back into the market...)

This is not as easy as it sounds even if you did decide to take such action since the markets often time will close down for periods of time with news is pending and so your orders to sell everything will often be at the most depressed levels.  History actually tells us that more often than not, if you want to do things on days such as this, going the opposite of the crowd would be better advice than trying to sell when the information about a crisis is apparent to all.  Now if you could divine these days and sell the day before it happens, then you might have something. 

My first experience as an advisor in this setting was October, 1987, and we had a six year bull market from the middle of 1981 until the 1987 meltdown.  Client after client would call and ask how bad is it; and how bad did I think it was going to get?  We saw the market chopped by almost a third of its value in about three DAYS!  My best advice seemed to be that since I wasn’t smart enough to get everyone out of the market three days earlier when it was much higher, I for sure didn’t want to encourage anyone to sell after it had dropped this much!  As all of us felt our footing to be shaking like we were standing on a financial earthquake, we could not be certain that even that was good advice if the whole system were melting down before us.  Out of all of our clients, only one of them decided to sell half of everything he had in stocks and wanted to seek refuge in cash.  More than a year later, he did buy back and we figured he lost about $400,000 by not just holding and staying the course.

Was this Biblical advice to stay the course and hang in there during a crisis?  I would never pretend to think that my advice was divine but I will tell you that my prayers may be more passionate during periods of duress than they are during periods of prosperity.  And even now, I pray that any advice I might give to friends and advisors would be an outgrowth of my study of the Word and my reliance on Godly principles.  For those who wish to profit from events such as this, it is also likely that many would make the wrong moves.  If I told you before the tsunami hit Japan that you could bet on the drop of their currency, you might have speculated that the yen would drop.  In actuality the yen has been stronger!  (I don’t have room to explain that here)

Many of you and your loved ones are going thru difficult periods in your life.  We are told to anticipate that we will have such periods but also we are told to be of good courage!  No matter what is happening here on earth, it is a microcosm of time compared to eternity! 

II COR 5:6-7 (RSV) “So we are always of good courage; we know that while we are at home in the body we are away from the Lord, for we walk by faith, not by sight.” 

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