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How to Turn a 100% Gain into a 1,400% Gain

By Brian Hunt, Editor in Chief, Stansberry Research
Monday, September 28, 2009

"It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight!" – Jesse Livermore
 
Jesse Livermore was one of the most respected traders of the 1920s. He built one of America's largest fortunes at the time with his skills in the stock and commodity markets. The classic book Reminiscences of a Stock Operator contains his story.
 
"Sitting tight" was Livermore's term for not selling when he was up 20%... 50%... or 100% on a position. Sitting tight is the art of not taking quick profits.
 
You see, most traders and investors get tempted to sell their winners after they see a modest profit... like, say, 33%. They get fidgety. They tell themselves that, "You can't go broke taking a profit." They always feel like they should be doing something, so they take action and jump out of the winning trade.
 
This strategy will kill your long-term trading performance.
 
For instance... I have a friend who bought shares of Brazilian oil company Petrobras in 2003 for around $5 per share. He doubled his money in just over a year... and then sold. Nothing negative happened with the position – he just got fidgety and figured a double was good enough.
 
It's a shame my friend didn't "sit tight," because Petrobras eventually climbed to $70 per share. He missed the chance to make 14 times his money instead of one times his money. He missed the chance to ride the huge, multi-year trend in oil stocks to its fullest extent.
 
That's it. When you are right on a trade – whether it's tech stocks, biotech stocks, oil, or gold – ride it for all it's worth. Don't cut your profits short. Don't sell until you see a legitimate reason for concern... like a decline of more than 15%... or an asset's refusal to rise on bullish news. One of the best ways to get rich in the stock market is to get in early on a big trend and ride it for years... You can't ride a trend if you don't sit tight.
 
And although we're concerned with trading here, it's worth pointing out a key fact about the world's greatest investor, Warren Buffett... Buffett's partner, Charlie Munger, claims Buffett's edge over other investors is that he "sits on his ass and reads a lot." Buffett spends most of his time sitting. And don't forget Jim Rogers' "I don't do anything until I see money lying in the corner" philosophy.
 
You see, you can go broke taking profits... if you allow losers to pile up and if you cut profits short. Learning how to sit tight will make sure you let winners pile up instead.
 
Good trading,
 
Brian




In The Daily Crux
Market Notes
Corporate bond rally continues... debt fund LQD hits another new high.
 
Indian drugmaker Dr. Reddy's Labs jumps 28% in September to eight-year high.
 
Blackberry maker gets clobbered... Research in Motion plummets 15% Friday on concerns over declining market share.
 
Gold closes the week below $1,000.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%