Know When To Fold ‘Em

Reader Mike decided to not to follow our last domestic Sell Signal (6/23/08), but he actually added to his investment positions. Here’s what he had to say:

I have been buying CGMFX over the last 6 weeks between $54 and as high as $60 per share. I have bought about $40,000 of it. It seemed to go up every time the S%P went down so I thought it was a good hedge. Lately, it has just been going down with oil prices and commodities.

Should I just wait it out and hold or sell? I know Ken Heebner is a good trader but even he seems to be struggling with the downward oil and commodity trends.

Now I feel like an idiot for buying it at its peak. Should I just get out now?

Mike obviously went against the major trend hoping that the dip would only be a small one. This actually has happened many times in the past as readers have tried to use pullbacks as buying opportunities only to be caught in a bearish downdraft.

If you put yourself in this position, there are two things you can do, and they depend on your risk tolerance:

1. Sell all holdings now and chalk up the result as an expensive learning experience, or

2. Sell 50% now and put a 5% stop under the balance. That way, you have protected half of your assets from further declines and, should the markets rally from here, you have the other half working in your favor.

While CGMFX is one of the better mutual funds in existence, it still is not a buy and hold forever. Major trend changes to the downside will pull the best managed funds into bear market territory as well so the best course of action is not to own them in this type of environment.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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