Way back in 1969, there was a company called Poseidon No Liability – not to be confused with its namesake Poseidon Nickel Limited (ASX: POS), which is the renamed Niagara Mining Limited and currently trades on the ASX.
Back to Poseidon the former. The company was an obscure miner that announced a major discovery of nickel in Western Australia. This commodity was in very short supply and high demand with the Vietnam War raging.
At the time, nickel was selling on the London market for £7,000 a ton (or approximately AU$25,000 converted to today's value).
Some lucky investors had bought Poseidon shares for just 80 cents, but after the company announced its nickel discovery, the shares quickly rose in value and reached $12.30 – more than 15 times higher. But this was just the beginning.
Absolute fortunes were made, and lost
Without any further statements from Poseidon, the share market caught nickel fever. The Poseidon share price rose further and further and kept on rising until it ultimately reached a share price of $280 in February 1970.
Many clever investors made extraordinary profits – literally millions – by selling as the shares rose. Others bought in and held their investment, losing fortunes as the Poseidon share price crashed back to next to nothing.
So, what is the secret behind knowing when to sell? Is it all just guesswork? Or is there a science to it?
Knowing when to leave
It's first worth reminding ourselves that the economists define 'profit' as 'the reward for risk'. Every investment in the share market has an element of risk attached and there is no scientific or fool-proof answer to optimising profit.
However, realism is one answer. Vigilance offers another.
How much do you realistically believe would constitute a fair and reasonable profit on your investment? Set that figure as your goal and as your shareholding approaches that figure, sell.
It also pays to be aware on at least a daily basis of movements in the price of your shares. Your investment is not a set-and-forget proposition, it requires constant monitoring. When you are totally on top of market movements you can act swiftly to capitalise and gain.
The one question every investor wants answered
As you've no doubt gathered, there is no solid answer to the question of knowing when to take profits with a sale. Maybe that's why we are all so enthralled with the share market – its ups and downs, its moods and tantrums.
The market seems to rise and fall on the dubious strength of a whispered rumour or the international significance of an impeachment vote. But that is exactly why we love it.
There will always be risks to be taken and profits to be made. Just knowing when to sell is the 64 dollar question.
