BusinessWeek reported that Soros Fund Management increased its already large stake in the SPDR Gold Trust by $421 MM to a total of $663 MM, making gold the largest position in his fund.
His initial gold stake had almost doubled, yet he more that doubled his existing position. Why? Soros is a trend follower, and trend followers typically add to winners to ride the trend further: they know when they’re getting out, and they don’t know where the top is. In adding to his already large, wining position, he has signaled to the market that he doesn’t know where the top for gold is. Soros made this investment despite saying that gold was in a major asset bubble.
Think about it and send this post to your clients who want to know why Soros makes the money he’s made over the years.
–Soros had an existing winning position.
–Soros added to his existing position and didn’t feel stupid b/c he was paying a much higher price.
Traders can add to winners and invest their gains into their Stop. By doing so, they will have a larger position to “ride the bucking bronco” as Bill Dunn would say, and by investing their gains into their Stop, get liquidated on the entire position and still walk away with gains, albeit not with the most gains they could have.
For example, say you are long 1 contract at $600 and you buy another at $1,200. You have $600 in unrealized gains (that’s your money, not the market’s). To invest your gains into your stop, you enter a protective Sell Stop order to sell 2 contracts at $1,000 for example – liquidating your entire positions and still walk away a winner.
Any price over $900 will work, b/c that is the break even and you don’t lose any of your original investment.
Even though the market is 2x where it was when you bought, it still looks cheap if it’s going to $2,500…something in fact that you have in common with George Soros: you don’t know how high it can go despite how foolish you might feel buying more at $1,200.
The positive intention of those foolish feelings might be telling you something very important: they might be the feelings of doing something different from what losing traders do, and it’s just a new feeling for you…so try to feel that foolish feeling more.