When the sun comes up in the West

There is nothing in the world like enjoying a nice cup of coffee and watching the sun coming up over the ridge of the Western horizon…until you say. Hold it! The sun doesn’t come up in the west!

Such was my day today. I woke as I do early and read through some articles about the state of the US economy, trade, dollar values etc.

http://news.xinhuanet.com/english2010/china/2011-04/23/c_13842843.htm

I was particularly struck by an article that talked about the amount of US dollar debt China has purchased and their desire to trim it down by 2/3 and add diversification to their monetary portfolio. I was thinking about this as I poured myself a cup of coffee.
If China did this suddenly (or if they were perceived to do this suddenly) it could drop the perceived value of the US dollar. Could it (in theory) crash the dollar? It seemed possible, although I doubted that China would take such an action at least very quickly…but. I kept thinking.
I am sitting on cash (sure would be nice to have some hard assets. Silver had been moving up and I checked the pre-market orders lots of buys (very few sells) which meant should see a surge at the opening bell. I did what I don’t like doing (put in an order as soon as the market opens at “the best price I could get”). This type of trade is called a Market order. I tend to like buying “limit orders”, which means only buying if something goes on sale. However, silver in particular kept going up and never filling my market order, so I thought I would try a market order instead. Not a good idea.
Market opened with a surge. I bought 400 units of the trust SLV at a price of 47.00. I had a cup of coffee with my wife and breakfast and then decided to see what happened. Wow, didn’t see that coming. Silver unexpectedly tumbled. I was down $200 and I only had the unit’s a few minutes. I thought…well, that can happen. My general direction is up, I may have to keep this holding longer before I pull a profit. It took another dramatic tumble. Now I am backwards almost $300 dollars, I still hadn’t waited an hour. Wow, if I was working a job making -$300/hour, I couldn’t afford that job long.
I chose a stop loss. I bailed at a loss of almost $300. I looked at my gold which was now losing money for the day (still profitable from when I bought it), so I bailed (took my profits, and ran). I wish I could say I didn’t enter Silver again, but it levelled (sometimes called a “sucker rally”) I bought again, and took another $80 loss. I had a order on oil if it ever dropped low enough, so it bought and kept dropping. I decided I didn’t want to risk this one on a day like today. I sold (actually made just a couple dollars there). In a short time, I was all in cash. I had to accept a total loss for the day of $285.12. Not my favourite situation.
Are there lessons to learn? Yes. First, if you buy anything for investments you need both a point where you are leaving (taking your profits and running) and you need a stop loss (a point where you say…hey, that’s all the pain I am willing to take). Any trading without those is sloppy at best and will force one to pay some “stupid tax”.
Next, flexibility is a wonderful thing. Today I dumped everything and am sitting in cash. If the world is crazy I don’t want to suffer along. Look for a morning when the sun comes up in the East and sets in the West. Not a day like today. If I had some holding with a broker, I would likely find him/her unavailable on a day like today. It’s Easter Monday, the banks and brokerage houses I worked for were closed. Most people perceive the markets as closed here in Canada. Also, unless I was watching this I would have dropped by and found out I took a huge loss with no real way to get out.
Mutual funds don’t trade moment by moment. If you want to sell, you have to put in the trade and the sale happens at the end of a day. This would make sure that you took the losses that happened that day. Not very flexible.
Any rate, I am not telling this to show how smart I am. In fact, the opposite is more true, but I hope you might be able to learn from my mistakes.
We are stewards of these resources, we need to do the best we can with them.