Trading…when you think you know

Sometimes you just don’t know how things will turn out. Or, at least, definately not how you expected them to.

I have been “trading” on and off for many years. On, when I had cash to fund an account and off, well, when said trading hit the wall. It started with stocks on the ASX (Australian Stock Exchange) in the mid 90's. I was single, had cash in my pocket and thought that this stockmarket thing was easy. I bought into a few stocks that I read about in the newspaper for a few thousand dollars. These stocks drifted along for a little while. That drift turned into a longer while, so I looked for other opportunities. Everyone knows that speculative stocks are where the money is really made, right? Find an unknown mining stock in an obscure African country, buy it when price is low and sell it when they hit pay dirt after hitting a rich vein of <insert precious metal here>. Easy. I just sit back and track the rise of the stock price.

For me, this stock was a WA miner, Anvil Mining. Why I chose this particular miner I cannot recall. It was trading at 17c a share and had mining rights to copper mines in the Democratic Republic of Congo (DRC). So far, none of this rang any alarm bells for me. I know, right? So I bought 10,000 shares. All up, $1,700.00 plus the cost of the trade...probably $25-$30 back then. This was easy. And the rollercoaster ride had begun.

After a few positive reports in the testing of samples, the share price slowly rose. And it kept slowly rising. The company announced a 10:1 stock split, effectively reducing my holding from 10,00 to 1,000, however, the share price had a zero added to it now. After a couple of years it moved form between $2-$5 a share. More positive results, some copper mined, and the share price continued to rise. Over the course of the next 5 or so years the share price rose to just over $22. My holding was worth $22,000. And, as I’d held these for a number of years, any sale would result in Capital Gains Tax (CGT) on only 50% of my holdings. If I sold. Which I didn’t. Why would I?Surely it would just keep going up. I mean, c’mon, that’s how this game works, right? But, just to be safe, let me place a pending sell at $22.60.

As the share price began to fall in step with the rise in civil unrest in the DRC, there was no panic from this seasoned veteran. This will all blow over and it will hit my exit. It will. I just know it.

The price slowly moved through $20, then $18 and settled at $15 for a short time, but I was unconvinced. A rally was coming. $14, $12…$8, $6, $4. Hmm, maybe I misjudged this.

In the end, I held for a while longer and sold a partial lot at around $5 and another again around $6-$8…cannot recall exactly. My subconscious has probably erased the finer details of this episode to protect me.

These days, I try to practice the art of using stops and realistic profit targets, at least for part of my trade. Let the winners run where you can. But, even that is a psychological cocktail of mixed results!

Above all, trading is all about risk management and capital preservation. That’s it! Make a note of it. RISK MANAGEMENT AND CAPITAL PRESERVATION.

You’re welcome! :-)