Friday, June 8, 2007

Profit taking is dis-respecting capital gains - good!

According to the news, stock investors have spent the last few days "taking profits." Years ago I read a sour comment by a trader that they wished they were taking profits, but in reality was simply trying to get out at less of a loss.

Still, since the overall market did reach record highs early this week, I'm sure that many people did have profitable positions.

So if holding onto stocks for long-term capital gains the optimum procedure, why do the traders who know the market best always rush to convert their capital gains to cash? Could it be they value cash in their hands today more than the nebulous prospect of future capital gains -- capital gains which exist only on paper and which could go up in smoke tomorrow.

$7 trillion in capital gains vanished in March 2000. Today's Dow record could turn into the high water mark of a flood -- a record, but the water's receded. Capital gains come and go.