A Story Of Buy & Hold vs Timing - Whitehaven Coal

Prefer to watch a video? Watch this newsletter here:

Today I’m going to share a quick story about an investor named James, who I spoke with a little while back. 

James previously worked for a company called Whitehaven Coal that you might have heard of. It’s a really good example of why you can make much more money in the market by using timing rather than just buying, holding and hoping that things are going to go well.

So, as you can see when we look at the chart of Whitehaven Coal here, it has big trends up, and big trends down. And while you would have made money, if you’d bought over here and ridden all those trends up and down to today, you can actually do a lot better if you can take advantage of these trends and time them to your benefit. 

So, let’s zoom in on a few specific times while I tell you about James. You see in 2016, 2017, and 2018, Whitehaven Coal had a huge run and James had purchased a bunch of shares on the way up as it rose almost exponentially. You can see that on the chart here. 

It grew 1500% in only a few years and James was killing it. He couldn’t believe his luck. The problem was though, he didn’t have anything to tell him when to get out. He thought that he’d instinctively know when to sell them and retire on his massive profit. 

So, when things got a little bit uncertain as you can see at the end of the chart here, he just held them, thinking they still have plenty of room to grow. Now, we’ve all done that, haven’t we? Let that little voice in our head tell us to keep holding on even though we really know we should sell. Then it ends up costing us dearly and you’re kicking yourself for doing so.

Unfortunately, that’s what happened to James too. 

Whitehaven got smashed over the next two years and he gave back pretty much all that he’d gained. At the time, the entire world was talking about emissions targets, the government was pumping all this money into renewables so, understandably, the price took a dive. 

Coal was dead in the water and the Whitehaven stock price had paid the ultimate price for it, taking James’s hope of an early retirement down with it. So, when I showed him this chart, which I was probably a bit cruel in doing so when I look back on it, and the exit signal that SPA3 Investor had at the time, he almost cried realizing how much he would have saved had he gotten out when he saw things begin to turn downwards. 

This is why timing is so critical and you always need to know when to sell. Now you may know the story of Whitehaven Coal and what’s happened since. Basically, when everybody had written them off and no one was going to invest in coal ever again, the share price started to turn.

If you’d looked at the fundamentals or listened to all the doom and gloom around them in the media and the newspapers and everything, you may never have bought them.

Yet for some reason, some people were buying. The tide was changing and the price was rising. So, because of that, our SPA3 Investor system gave an unemotional, objective, buy signal. That’s the great thing with a mechanical system. It’s completely objective.

Now if the share price is rising for whatever reason it’s happening, and it meets all the right criteria, you get a buy signal. Simple as that. And that’s exactly what happened.

In this last big run that’s happened on Whitehaven, you can see there have clearly been three buy signals. One, two, three buy signals. And three sell signals. One, two, three sell signals. 

Now if we look at the first trade, so three trades in total. The first trade didn’t really do much. But it got out and protected when the price started to dip here. Okay? Because if the uptrend doesn’t continue and the stock price falls 85% like it did in the past, you don’t want to be there kicking yourself like James did, do you? 

Okay. Now the second trade was a tidy 51% even though it looks quite small on the chart here, it was a 51% winner. Before the price started to pull back and we sold.

Now the price doesn’t go up in a perfect straight line so we can use these pull backs as opportunities where we can get out, reset and then buy back in at a better price.

You can see in the third and final trade here, where we did get back in at a better price, went on to make a whopping 213% there. Once again, when the exit signal occurred, we sold. And we haven’t touched it since. 

It fell almost 50% from its peak at $11.04 all the way down to a low of $5.64. Now when that happens, you don’t want to be in there frozen like a deer in the headlights watching your money dwindle away. So, you take the money out with a decisive exit signal and you put it in the next stock that the system tells you to buy. 

Making your money work harder for you, allowing you to sleep easier at night, by using an efficient 15 minutes a week process that’s completely repeatable. Month after month. Year after year. And that’s what it’s all about. Using timing rather than buying, holding and hoping like James did.

Warren Buffet famously said, ‘be greedy when others are fearful, and be fearful when others are greedy’. 

That’s exactly what we’ve done here with Whitehaven Coal. So don’t leave your money in the hands of others who don’t care nearly as much about it as you do. Learn the skills for yourself. Take control of your own financial destiny and your future self will thank you for it later. 

Until next time, I wish you consistent and objective investing.