OK I know someone who had bought some shares of IAU, an ETF that holds physical gold. (The point was to have some exposure to gold in case things got really bad, late-1970s style.)
With gold falling so much since early April, the person decided he would sell off his IAU shares if it ever hit $84. He had bought in at $93 or so, and so that cutoff would limit his losses to an amount that was acceptable. I pointed out that he should have a point at which he would get back in, in case this dip down was just a temporary thing and gold really did soar up to $2,000 / oz. as some alarmists are suggesting. He agreed this was a good idea, and so decided $95.
OK, so everyone gets the idea? He bought in at $93, it was tanking, and if it hit $84 he was getting out to limit his losses. If it kept falling, that was good he got out. And if it zoomed up to $250, he would have gotten back in at $95, so he would only be out from the zig-zag, and would still be protected in case things really went to heck with the economy.
Now here's the kicker: He was incommunicado yesterday, when IAU sank below the sell-point. So he obviously didn't sell. (He hadn't set up anything automatic with his broker.)
Now today, IAU is back up above the sell-point.
So should he sell or not? On the one hand, you could say, "Yes! He should have sold yesterday; the fact that it got so low was a warning that things weren't playing out the way the alarmists had said, and so now just be grateful it bumped up a buck right before you sell."
On the other hand, you could argue, "No, right now IAU is at a price that would not have warranted selling two days ago. So if your strategy was to hold it unless it dipped below $84, you shouldn't sell it now when it's trading at $84.50 or so."
BTW, I really am talking about another person. All of my savings are in cheese curls (.wav).
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