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Why We're Selling Half of China Today

By Dr. Steve Sjuggerud
Monday, June 8, 2015

A huge announcement about Chinese stocks is coming tomorrow night...
 
On June 9, shortly after 5 p.m. ET, MSCI – the world's leading provider of global stock market indexes – will announce whether or not China will start to be included in its indexes.
 
Even if MSCI doesn't approve China tomorrow, it will sometime soon. And this will ultimately cause hundreds of billions of dollars to flow into Chinese stocks over the next couple years.
 
But right now, we're selling half of our position in our top China holding in my True Wealth letter.
 
Why would we sell half of our top China recommendation in True Wealth when we are confident hundreds of billions of dollars will ultimately flow into Chinese stocks?
 
Let me explain...
 
You might guess we're "buying the rumor, and selling the news." That's a classic money-making Wall Street secret.
 
"Buy the rumor, sell the news" will probably work this time... Chinese stocks have been soaring in advance of tomorrow's announcement. It would be natural for Chinese stocks to take a bit of a breather when the news finally comes out (regardless of what it actually is).
 
But that's NOT what we're doing...
 
Our decision to sell half of our position has nothing to do with the big news coming tomorrow. Instead, our decision to sell half was made when we entered this trade in the October 2014 issue of True Wealth. Here is exactly what I wrote at the end of my China story (to be fair to my True Wealth subscribers, I've taken out the name of the fund):
 
Buy [fund] today, and sell half once you're up 100%. Plan to be in this trade for about two years.
 
I can't promise a 600%-plus gain like we saw the last time the Chinese government pushed stock prices higher... But [fund] shares offer us the best chance for triple-digit gains in the world today...

We're now up more than 100% in less than nine months. It has been an incredible move. So, it's time to follow our original advice and sell half our position.
 
You might be wondering what the point of selling half is.
 
Think about this... If you were fortunate enough to turn $10,000 into $20,000, and you sell half, then you are immediately pocketing $10,000. Doing this does a couple things:
 
1.   You've gotten your entire initial investment back. (You've "marked to pocket" as I say.)
   
2.   You've lowered your risk.
    
3.   You are still letting your winner ride. The upside potential could still be substantial in whatever investment you're holding. But at this point, you're somewhat rolling on "the house's money."

In short, selling half once you're up 100% is really about:
 
1.   Pocketing big gains. (It ain't a great trade until you've pocketed it.)
    
2.   Controlling risk – but still having upside.
    
3.   Taking your emotions out of the trade.

Selling half when you're up 100% is especially valuable for non-professional traders – where emotions can often get the best of them. (Don't get me wrong, professional traders get crushed by trading on emotion too.)
 
In short, if you're up 100% in any stock, you ought to consider selling half your position. You get 100% of your initial investment out, you reduce your risk, and you're still onboard with upside potential.
 
I almost always sell half once I'm up 100% in a position. You should consider doing the same.
 
Good investing,
 
Steve




Further Reading:

China isn't the only Asian stock market heading higher. Steve's True Wealth subscribers are up more than 80% in Japanese stocks. And he says there's plenty more upside from here. Learn all the details here.
 
Steve recently explained why most investors underestimate Asian countries. "You may be surprised to learn that Singapore and Hong Kong ALREADY have us beat," he writes. "Income per head in both Singapore and Hong Kong is higher than it is in the U.S." Get the full story here.

Market Notes


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NEW LOWS OF NOTE LAST WEEK
 
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Avon Products (AVP)... makeup products
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Lumber Liquidators (LL)... laminate flooring
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Canadian Pacific (CP)... railroads

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This simple tool can lower your investment risk even further...
 
Selling half your position after hitting 100% gains locks in profits and lowers your risk. At that point, you're playing with the house's money. You can't lose. But we don't always have this luxury...
 

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