Thursday, September 23, 2010

Earl's Dilemma


Dear Investor Juan,

Good day! I'm a "newbie investor" and I would like to seek your advice with regards to something that is related to this post. I started investing in BDO Equity Fund last year (Sept. 30) to be exact. After that I placed additional investments in January, February and May of this year. I now have accumulated a total of 365.5601 units bought for a total of Php60,000.00. Presently, the daily NAVPU continues to rise and if I redeem my investment right now I would have a profit of almost Php30,000.00. 

Do you think now is the right time to cash out my investment or wait a little longer to see if the NAVPU will continue its upward trend? I am planning to buy that entry level DSLR with my profit... :).


Earl B.

Dear Earl,

Wow, what an enviable position you're in right now; what I would give to have your "problem."

Having said that, I also need to emphasize that I am in no position to tell you what to do. All I can do is give a few things that can help you come up with a "good" decision, one that is arrived at more systematically and methodically.

First, define your objective. Do you just want to have enough cash to buy that DSLR camera, or do you want to maximize your earnings as much as you possibly can? Knowing what you really want is an important first step in determining your best course of action.

Next, identify all alternatives that are available to you. Remember, you're not just limited to selling everything now or holding on to everything: you can always take the middle ground and just sell enough to fulfill your cash requirement. For example, if that camera that you're pining for is worth 30,000 pesos, you can just sell enough units (around 123 at the current NAVPU of 244.729) to cover that amount, essentially just taking your profit while staying in the game; or, you can pocket the principal and just "play with house money," as they say in gambling circles.

Finally, you have to have some opinion about how stock prices in general will behave in the next few weeks, or months. If you think the run has not reached its peak yet, then the best move would be to stay; if you think otherwise, then sell. But if you're just as unsure as the rest of us (don't ever believe anyone who tells you that he or she knows what's going to happen tomorrow), the best move may be to play it safe, sell enough units to buy that camera (or cover your ass), and hope for the best for your remaining units.

Whatever you decide, what's important is to gut up and stand by your decision: there's no point in beating yourself up just because the PSEi goes up a few points after you decide to sell some shares. Like I said at the beginning of this post, I completely envy your position, since you managed to enter the market at almost the perfect moment; the worst thing you can do now would be to try to "guess" the perfect moment to exit.

Enjoy your new DSLR. Share your first few shots with us, why don't you?
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