The concept of house money, selling half when the price doubles and letting it ride..

[zdreg]

your net profit is 5...but it should have been 10. It's about risk management, not taxes.
If you asume risk from your entry point instead of marked to market you don't need to worry about paying taxes, because you won't make money in the long run.

Not true. Most home runs in stocks in the long run(12+years) have had 50% retracements in their history.

 

[deaddog]

Not true. Most home runs in stocks in the long run(12+years) have had 50% retracements in their history.

That doesn't mean you couldn't trade around that retracement.

 

[deaddog]

Only one right answer, you made 5

Are you from the "If you don't sell you don't have a loss" school?

 

[Handle123]

You sell half of the stock/crypto when the prices double and then what you are essentially left is termed "house money" as you have gained your initial capital back, and you can let the house money ride as long as possible without worries. Is this a fallacy? As you sell half of it and gained back your initial capital but then again you still need to put that amount into something else and it has to double again, "house money" in reality is still your money. In my opinion, if a stock/crypto is worth holding you might as well not sell anything even after a 2x.

I do see some good points in it though, I guess psychologically this method can be effective as the money is viewed as house money, and people would not really panic sell or be as affected emotionally if it goes to zero, and they would let it ride as long as possible which sometimes gives exponential returns.

If someone has employed the house money strategy before I would like to hear your thoughts and how
did things work it. Would it be better just plain not selling or better yet to trade it?

Really depends on market cycle, every 6-12 years markets make huge plunge like 2008, so 2009 is buying opportunity, it would be foolish to sell half of a position cause you want "free profits". Whereas deeper in overall trend of handful of years, taking off half position might test logically to do. Also have to consider what you lose on half cause of missed dividends and selling covered call options.

 

[zdreg]

That doesn't mean you couldn't trade around that retracement.

It means exactly that. You are supposed to be a passive investor in that strategy not a trader. The only action is reinvesting of dividends, if there are any.

 

[deaddog]

It means exactly that. You are supposed to be a passive investor in that strategy not a trader. The only action is reinvesting of dividends.

Why would a passive investor be on Elite Trader?

 

[zdreg]

Why would a passive investor be on Elite Trader?

He doesn't want to admit that he is a passive investor. He wants to pretend that he a kick ass wheeler dealer in stocks.

 

[SunTrader]

You sell half of the stock/crypto when the prices double and then what you are essentially left is termed "house money" as you have gained your initial capital back, and you can let the house money ride as long as possible without worries. Is this a fallacy?

By doing that you are saying you believe it will continue higher. If so, then why sell half?

Selling half says to me you are only half sure. Which if it were me would be the reason to sell all. And rethink current market conditions and possibly go short. What blasphemy on this site.

So yes IMO house money is a fallacy.

 

[murray t turtle]

If you consider it house money then you're kind of admitting you are gambling. If it's in my account it's my money.

It's how you look at things. If I buy a stock at 10 bucks and it goes to 20 then falls back to 15 where you sell it, have you made 5 buck or lost 5 bucks?

%%
MADE $$5.oo----------- less comissions if applies\SEC fee----- power co electric fee..................................... BUT i may keep it if all my ETFs pullback more than that.....................................................................
Even more important, crpto cr*p\bit con is not near stock/ETFS @ all.
I dont care if W Buffet calls them ''rat posion''; there is a small sellers market for ratraps/gluetraps...........................................
Frankly i would not trade/invest @ all if i though markets were the ''house''LOL; or pretended a glue trap\rat trap. were an ''investments/trades''

 

[Zwaen]

The basic flaw in this reasoning is that you let your second investment decision depend on the outcome of the first one, while they should be treated as two seperate independent investments (or trades). From a psychological viewpoint it is understandable. Keep in mind that it is totally different from putting extra money in a position which goes against you, which is valid only IF your original idea is valid. The danger is ofcourse in recognizing if the original investment idea is the same, or your viewpoint is blurred by your own psychology.

It is like the economic theory of 'sunk costs', when people have already spend money on something it seems wise to spend more on it.