Stocks & Commodities V. 31:7 (34–38): Trading Buy & Hold by Thomas Bulkowski

Stocks & Commodities V. 31:7 (34–38): Trading Buy & Hold by Thomas Bulkowski
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Trading Buy & Hold by Thomas Bulkowski

There’s No Holding On

Trading Buy & Hold

There comes a time when you have to sell your long-term holdings. Here’s how you know when to sell them.

Trading buy & hold may sound like an oxymoron, but one day the hold in buy & hold will become a sell. Usually, when someone buys and holds a stock for the long term, it means they will own it for years, sometimes decades. In 1990 I bought shares of Michaels Stores and after 17 years, had to sell them. I didn’t have a choice; the company went private. Fortunately, I made almost 5,000% on the trade. Whether you have a choice or not, most buy & hold investments have an expiration date — a time when it’s best to sell.

When is that time?

Take a look at the chart in Figure 1. In the period leading to the bear market in 2000, many semiconductor stocks showed a profile similar to that of Intel (INTC).

In the late 1990s, the value of INTC made tremendous gains, but the velocity ramped up in 2000 when the froth for technology stocks pushed them to Everest heights. Then look what happened. The tech bubble burst and the bear market did the rest. Since then, the stock has been stuck at base camp.

To highlight that the plight of INTC was not alone, I show another example in Figure 2. The chart of Anadigics (ANAD), another semiconductor stock, looks similar to that of INTC. The stock price waved up and down and then had a sharp rise from 1999–2000. After spending two months in the rarified atmosphere over $100, the stock started its return down the price mountain. At the summit in March 2000, the stock price reached $112. A year later, the value of the stock bottomed at $10.50. An investor seeing that kind of giveback would question the sanity of holding a stock for the long term.

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