Description
This article is from the A Guide to
Closed-End Funds (CEFs).
Trading Closed-End Funds: Selling
Perhaps the hardest part of investing is deciding when to
sell. This is especially true in trading when selling must be done
during periods of high optimism, especially if you have built large
positions in relatively illiquid CEFs.
The basic rule is to sell when the valuations become unfavorable,
for example, the discount has moved to some threshold above the normal
discount, or some loss-limit has been reached. It usually makes sense
to apply a loss-limit, because when some of the markets in which
closed-end funds invest in go down, they can go way way down. Some
examples:
%Decline from peak to bottom
Hong Kong (1970-74) -92%
Taiwan (1986-90) -80%
Mexico (1978-82) -86%
Mexico (in $) (1994-95) -71%
The reverse of the two rules quoted for buying apply here:
- You will almost never find the top at which to sell, the corollary is
to average out of the CEF by taking profits.
- There are sure to be funds that stayed put till it became too
dangerous to keep the position and soared just after you sell them. The
trick again is to diversify so that this happens less often.
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CEFs, closed-end fund, premium, discount, volatility, trading, investing, leverage, yields, buying, selling, shares, money, funds, mutual funds, adventages, disadvantages, liquidity, commissions, brokers, source, information, reference
