Carbon Trading: A good reason to exit the Stockmarket

When your taxi driver, next door neighbour and friends at barbecues start talking about how much money they have made buying carbon credits on the NZX, which start trading in New Zealand in July 2010, you will know it is time to exit the New Zealand Stockmarket, and other global stockmarkets as well.

Whether you think the theory behind climate change, which carbon trading is supposed to help ameliorate, is true or not - and it has been proven it isn't - carbon trading is going to be the buzz phrase of 2010 and beyond. As the price for these carbon credits increases, and it will, it is going to take stockmarkets on a ride with it not seen since the Internet boom on the late 90s.

Like that boom though, Carbon Credits have no real assets behind them to back them up, they are simply "made up" and the revenue that flows from these credits is based on political maneuvers and manipulation rather than real economics, so the ride isn't going to last forever.

As I picked almost 2 years ago I expect a bull run for the NZX in 2011, for different reasons back then but the carbon trading market is going to be part of the resurgence.

This isn't about knocking global warming or carbon trading though, because others do it better and quite frankly it is easy to do because of the sheer kookiness of it all. This is about my strategy to get out of the stockmarket before the carbon trading market inevitably collapses and takes everything else down with it.

I prefer my own exit strategy, I don't like being pushed. but I reckon i will have little choice once this pile of bullshit gains momentum.

How bad it will be nobody knows but the carbon trading market is likely to get intertwined in every facet of our lives as well as our financial markets so any fallout from its collapse will be significant.

I just have to wait for those first signs to come and for every Al (oh hang on HE already is and is already making moola out of it), Dick and Harriet to start blabbing constantly about it and I know the market will be near its peak.

Keep that in mind if you are going to get into carbon trading directly or the stockmarket in general and head for the exits if you dont want to lose your carbon neutral shirt.

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c Share Investor 2009

Trying to define an exit strategy

I think I have developed a successful strategy for myself for buying good stocks - buy and hold for 10 years or more - but shouldn't I really decide in a similar way as to when exactly I should sell?

My first answer to that would be a definite yes but on the other hand if I have picked good stocks/companies to invest in in the first place then surely I should hold them "forever" and collect the returns along the life of the company ? - or at the very least my life.

Lets have a closer look at what I could do when, if and why I might want to sell off parts or all of the Share Investor Portfolio.

Lets have a look at some salient points one might look at when deciding when, why or if you should sell up. You will be able to tell from my many different tangents and questions to myself that an exit strategy to me is as foreign to me as soap is to a Green Party supporter.

Please keep in mind I am writing this as it comes into my head, clearly with no planning:

1. No company lasts "forever". Many of the 17 companies I have shares in will not be around in 10 years, either in whole or in part. Some will have been taken over, some will exist in different forms and others will simply be out of business.

2. Companies fortunes are never static. Depending on what sort of company one has invested in most have economic cycles where profit and performance ebbs and flow. Some that are managed better than others are able to get through these cycles unscathed and manage the extremes well - either because of management or design of the business.

The company value will vacillate between these two cycles and in the case of a listed vehicle a good opportunity exists for that shareholder to take the money and run just past the mid point of that economic cycle to get the maximum return for that asset - until the next cycle begins again of course where one may get an even better return if one has the patience.

3. Management plays a big part in deciding whether to get in or out of a company. If it changes and the fortunes change this could be a very valid reason for you to cash in your chips.

4. An individual who invests in a company, either listed on the stockmarket or private is unwise to invest money one cant afford to lose or will need to pull out in the future but sometimes circumstances change and you may have to reassess your position in the stockmarket - clearly not a good exit strategy and one that I am mindful of given my changing family demands and current economic conditions.

It can be very painful to your wallet if you have to sell any asset and I guess planning an exit strategy close to when you buy - along with the usual due diligence - is a good way of ameliorating any negative outcomes.

5. Setting a percentage return, either on an annual basis or over the term you think you might hold your stock might be a good way of exiting a stock - you cant really argue with hard concrete numbers right? After all you are investing to make money!

6. Look at the returns you might be getting from a comparable business and decide if your company can do better.

7. Consult a financial adviser - nah just kidding, do your own thinking. Only you know what is best for you financially and your exit point will be different to someone elses.

8. Related to the above, do some of your own research about exit strategies, talk to others with more experience in the stockmarket and take the points applicable to you and only you and jettison the rest.

For the life of me even after writing this I am still in more than two minds about when to decide just when to sell. There is so much to take into account when there is money involved and as I said above I am 99.9% sure of my entry strategy but probably 50/50 on when to head to the hills.

My head says I must hold indefinitely because I am pig headed about decisions, I think I made the right initial company choices so why wouldn't I hold until I curl up and die as long as the companies are making moola and then pass on the hopefully much bigger mantle to my little girl? That is very clear in my my head, so I think I will end where I began.

With the intention of holding "forever".

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c Share Investor 2009