Three Profitable Shares

by | Oct 1, 2003 | Archives

Yesterday's message told about a reader who wrote “Got a call from Jyske Bank that Instrumentarium stock is being bought at a jump of nearly $5.00 per share over today's price until tomorrow. What's going on? Do you recommend selling my shares?”

We looked at the importance of luck in investing. Here let's look at the importance of knowing when to sell.

After receiving the note above from my reader and sharing my concerns that readers might feel they can use these messages for market timing, I wrote to my banker and asked exactly how the other shares I have written about have fared. Here is Jyske's reply.

“You bought six shares of Maersk at a price of DKK 59,100for DKK 354,600. The stock split 2:1, so now you have 12 shares plus you received DKK 330 per share in cash. The price of the Maersk today is DKK44,900 per share. The net value of your Maersk shares are today including the cash you received: 44.900 x 12 = 538.800,00 + (6 x 330) = 540.780,00

You profit on the stock in DKK 186.180,00 is equal to 51.94%.

You bought the Jyske Bank shares at DKK 193,00 today Jyske Bank is quoted at DKK272,00. Your profit 40.9%.”

There are several points we can learn from this. The first point is about selling. We have three shares, each with a substantial profit in less than a year. Should we hold or sell?

For me the answer is no. Here is why. Market timing does not work. Ask most stock brokers why investing in the stock market for the long term is better than bonds and they will show that long term returns in stocks are much better than in bonds. In fact they might even pull out a chart from Ibbotson (one of the market's main record keepers) that shows how A DOLLAR INVESTED IN COMMON SHARES IN 1926 ROSE TO BE WORTH $800 BY 1993. Then they will compare this with the fact that the same one dollar invested in U.S. T bonds would have grown to only $11.70. This seems a compelling difference. Right? Remember the saying “There are three types of lies. Lies, damn lies and statistics”. This applies here.

Here is the catch in this common stock market statistic, which you can see in the attached Ibbotson chart. If that dollar invested in common stocks from 1926 to 1993 (812 months) missed just the 30 best months of that entire period it would be worth $11.40 cents instead of $800. Just missing those few months makes the investment yield less than U.S. Treasury bonds. The morale. My advice is not to invest based on market timing! If you have nothing better to gauge whether or not to lay out your hard earned bucks than the market or a share might be ready to rise or fall, forget it…unless you know a lot more than I do! My advice is to start your own business instead! See and for more on this. My message on November 21, 2002 ( showed The first chart that looked at the past 100 years of Wall Street's performance. This chart suggests that the stock market began a 15 year down trend in 1998. See our message for more on this. Based on the implications in this chart we should not expect a real bull market to begin again until about 2012. However the second chart in that message showed how this downtrend may unfold with a series of 19 month to 32-month mini bulls followed by a sudden and severe drop. In other words U.S. equities will experience dangerous sideways movements for the next decade or so, but 2003 and 2004 could be good upward years.

But how can we know exactly when the market will move and how can we choose the right stocks and know when to buy and sell? We cannot do this with market timing!

Instead we have to turn our passions into profit and have the courage of our convictions. We need to invest in what we know and believe in and stick to our guns if our convictions hold. There is more on this at there is more. Currencies matter as well. You will see why in tomorrow's message. Until then may all your convictions be good.