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.
Comments 4
I too am a recent holder of CGMFX, but sold 1/3 on Friday.
Heebner smoked his peers over the Q1 07 – Q2 08 period (via emerging market commodity plays). Heebner has been exceptional over the long-term. He is also a high turnover guy.
I set up a mirror portfolio to his most recent public filings
(3/30/08 holdings) – That portfolio was down about -2.8% with +90% of the positions negative on Fri, Aug.
CGMFX’s actual NAV on Friday, Aug 8 was +0.5%.
I have been tracking this for several monts, and I believe over the last couple of weeks (mostly last week) Heebner traded out of almost all of Q2 positions, i.e. his emerging market commodity plays. Perhaps, he still holds his high conviction PBR 🙂
IMHO – the market just entered a fledingly recent uptrend with and Heebner is now in a totally different set of industry groups -perhaps rails, like KSU or medical products, like ILMN. I also see him mostly back in the US vis-a-vis emerging or foreign markets.
Shawn
Ulli: In your write up for new investors you say that as soon as you buy a mutual fund or ETF, you establish two sell rules. The upside and the down side. The down side is clear – a trailing 7% stop or TTI falling below its MA.
But the upside selling rule is unclear. Can you please elaborate on how you set up the upside selling rule? Thanks for your time.
I will comment on the upside sell rule again in Monday’s post.
Ulli…
Correction! Make that Tuesday’s post.
Ulli…