Easy to get in, Hard to get out!

            We all know the household name companies such as General Electric (NYSE: GE), Wal-Mart (NYSE: WMT) and McDonald’s (NYSE: MCD).  Most people know that these types of companies are great to buy and hold for the long haul.  But what if your strategy was different?  What if you were trying to make quick money off of super cap stocks (companies who’s market caps are larger then 100 Billion)?  Market capitalization is the amount of shares outstanding times the share price.  This is what the given company is worth on paper.  Let’s say you bought GE at $14 a share and it went to $15.5 in the next two trading days.  Let’s say you bought 1,000 shares. You just made $1500 in two days.  That’s a good return right?  Well, would you be able to sell it? Or would you think maybe it’s going to go to $17 a share?  These are all the questions that are asked when trying to unload shares.

            In the late 1990’s, a new company was on the horizon called Qualcomm (NASD: QCOM).  It bounced around for a while between $35-50 a share.  Hypothetically, let’s say we owned 800 shares of Qualcomm at $32 a share ($25,600).  In the next couple trading days it popped to $51 a share ($40,800).  In a couple days, your initial investment into Qualcomm has grown by $15,200 (+60%). 

            That is a huge return and you should sell your position in Qualcomm immediately!  On the other hand, maybe you want to let it ride?  Is that a good decision?  Making over 50% in a couple days is absolutely amazing. What are you waiting for you have to sell right? 

            If you would have sold your position in Qualcomm, turning $25,600 into $40,800 in a couple of days, would that had been smart?  Normally, yes of course.  But I used this example because in the coming months Qualcomm topped out around $654 a share!  Let’s do that math for fun.  Your initial investment of $25,600 would have turned into $523,200 (+428%).  Don’t feel so smart now, huh? 

            It’s not that hard to pick what’s good, rather it is extremely hard to sell it when you can make the most off it.  I used this example because it’s extreme.  Just to give a little perspective of why it is so hard to know when to sell.  Would you have held Qualcomm all the way to above $600 or have sold it on the way? (On December 31,1999 Qualcomm split 4 for 1 and was up 20 points on the first trading day after the split.)