NEW YORK ( TheStreet) -- Back when I was a financial advisor, the seasoned stock market veterans would say confidently, "Buy the rumor and sell the news."
Perhaps the latest version of this adage is "Buy the scary rumors and sell the big upside earnings surprises." That's what I did lately with my shares of Facebook (FB), and I won't be looking back.
Having purchased shares at $28.76 only to watch them fall below $23 didn't bother me that much since I had a stealth 25% trailing stop-loss alert set up.
If shares had fallen to around $21.57, I was going to act on my convictions and cut my losses. Thankfully, shares drifted higher before I hit that 25% trailing stop loss, and Thursday, July 25, they spiked 28% higher.Normally I would have tightened my stop loss down to 15% to protect my gains, but I realized if I did, with the price at $33.68, and assuming it was a temporary top, I'd be stopped out below the price I paid for it. So I locked in my gains by selling. My crystal ball is still at the repair shop and I don't know if FB shares are going higher from here or not. With shares now trading at a PE ratio of around 259 and the share price up almost 50% since the June 6, 2013 intraday low of $22.67, I chose to sell. If I owned a substantial position I would've only sold half. Alas, my meager position wasn't large enough, in my estimation, to split, so I parted company with all my shares at $33.68. My premise for selling is based on Newton's Third Law of Motion. Sir Isaac Newton may have been a stock market investor, but even if he wasn't, his Third Law of Motion spoke to me: "For every action there is an equal and opposite reaction." Time will tell me if my instincts about Facebook were correct. If the stock keeps going higher, I'll be chastised by Newton's First Law of Motion, sometimes referred to as the Law of Inertia.
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