Choosing the right time to sell mining shares

Published in the Daily Telegraph, May 2014 by Dale Gillham

The price of iron ore is in decline and it’s not just the ultra-rich owners of the mining companies who stand to lose.

Ordinary Australians hold shares in miners and they are seriously questioning whether prices will continue to fall.

Iron ore prices made a top early in 2011 and then began to fall, and the prices of the big miners followed. 

Despite the fall in the price of the ore it is currently still profitable for BHP and Rio, but profit margins are tighter for FMG.

Recently the decline in ore prices broke a very important level, being $US114/tonne, and in doing so increased the risk of further declines to below $100, and possibly to $89 a tonne.

Given this,the miners will make less profit and so if you choose to hold on to your mining shares then I suggest you be prepared for further downside in their price.

Often the most important question is the one not being asked. With shares,the question is what do I do to protect my shares if they continue to fall?

The answer is quite simple, in that with every investment you take, you should always have an exit strategy. 

For shares this strategy is done by setting a stop loss, or in others words, the maximum amount you are willing to lose if prices fall.

Currently BHP Billiton, Rio Tinto and Fortescue have share prices down 20 to 30 per cent from 2011 highs and if iron ore falls further so will the share prices. 

Therefore, if this occurs anyone owning these shares should be considering whether to hold or sell. 

Having a stop loss gives you control over your risk and this is critical when managing a portfolio of shares.

The problem is most people managing portfolios often fail to ask the right questions until well after a fall has begun. 

 Knowledge is power and will give you what you need to keep you safe in the market.

With miners there are times to be in them and times to be out, as they run in very repeatable cycles from low to high and back to low.

So investors should buy when they rise and sell when they fall, and knowing how to do this makes a big difference to portfolio returns over the longer term.

To learn how to gain the required knowledge to ensure your success in the stock market click here.

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