"Sell at the height of exhilaration, and buy in the depths of despair" someone once said, and this was echoed recently on one of the Fool boards. I cannot credit the poster, because for the life of me I cannot remember exactly on which board I read it. But I am sure you see the point.
Back in March, it was, when I remember looking at the club portfolios and there seemed to be good news and price rises across the board. I remember feeling particularly exhilarated that afternoon, and at the same time a strangely uneasy feeling came over me. It had been 3 months at least since the prophets of doom had shouted "But shares cannot continue going up!", and of course I and everybody else knew that they couldn't. But they had, you see, that was the point. They had just gone continuously up for the best part of 6 months. It was a period the like of which the market had never seen before and in my view is unlikely to see again. Traditional old economy stocks entered a selective bear market phase and anything TMT (especially dot com) soared into the stratosphere merely on the mention of the word "Net".
Now I'm not trying to be clever and just saying this with the benefit of hindsight, but that strange uneasy feeling I thought may be the beginning of the end. But did I act on it? No. Did I recommend that any of the clubs I am in act on it? No. Was I right? Oh yes.
So, in hindsight, that was the top; the height of exhilaration, the feeling that no share price would ever collapse again, in fact forgetting that the screen even contained the colour red in the "Daily change" column. That was the time to sell.
But when to buy back? Let's look at Baltimore Technologies (LSE: BLM). What a company. Digital security and encryption, basically. The shares peaked at the (adjusted) price of £14.50. Surely, then, they were good value at £12.00. No? What about £10.00? £8.00? £6.00? £3.00? They can't get lower, surely? What's this -- 30/11/2000 -- Baltimore trades at 262? Let's be honest, if we had the good fortune to take profits and sell out of Baltimore at the high, we would NOT have waited until now to re-invest it, would we? Not on your life. I suspect that we would have set a MAXIMUM downside of 40% and dived back in. That means that Baltimore would have been re-purchased at £10.00-odd. So, although we would have more shares (assuming that the same amount of money was re-invested) we would still be showing a huge paper loss on the second purchase of shares and we would also have incurred 1) a CGT chargeable event, and therefore a potential tax liability, and 2) dealing charges. And, let's face it, the benefit of owning more shares would only be apparent when the price for Baltimore gets above £10.00 and into profit.
Any club having the foresight to buy Baltimore last October/November time and who is still holding will be showing a 100-200% gain, which would have delighted everyone had they known that at the time of purchase. Top marks to any club that has resisted the temptation to sell their big TMT winners only to re-invest their funds into a falling market.
It has certainly been a tough period. I felt pretty much full of despair on the 30th November 2000 as I watched the value of the Club portfolios drop back more and more by the hour. Was that the time to buy? Maybe. Was it the depths of despair? No. I feel there may be a bit more pain before the gain. But as a club, you won't have the flexibility to just buy into the market; you must wait for your monthly meeting before any decisions like that can be taken. This is why it is important to "drip-feed" the money into your favourite stocks, and never rule out the top-up on stock if you feel that it is a good company. Don't forget, it is the company you are buying, not the share price.
So, as the festive season approaches, and you are wondering how on earth you can afford to put presents under the tree and turkey on the table, remember that a Club is not just for Christmas. It is a medium- to long-term savings plan, and should be treated as such. Stick with it, and for a final bit of festive fun, complete the following well known phrase or saying:
This time next year, we'll be...
1) Millionaires, or
2) Broke
Fool on!
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The Fool's Guide to Investment Clubs
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