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Old 01-18-2012, 04:21 PM   #21
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Old 01-18-2012, 06:45 PM   #22
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To me, the term "profit taking" is only meaningful when you invest in individual stocks, and have had a huge run up. Kind of like this poster, when he said he watched a $50K investment ballooning up to $600K, then crashing down to 0. See this and this.

When you are investing in MFs, you are only rebalancing, or in the extreme case, market timing.

I have never had a stock that went up 12 times like the above poster to know what I would do, although I have had stocks that ran up 2X, or even 4X. Additionally, I am so conservative that the single stocks I would put $50K in are established companies that would never go up that much.

About taking profit, I remember reading a book by John Neff. His claim-to-fame was as the manager of the Vanguard Windsor from 1964 to 1995, where his annualized return of 14.8% soundly trounced the S&P500.

Anyway, John Neff said one should not be too greedy. He said one should always "leave something for the next guy", and that he was never "smart enough to get out at the very top". He said he'd rather sell too soon than too late.
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Old 01-18-2012, 07:44 PM   #23
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I don't like to re balance too often for two reasons 1) I don't like the hassle and 2) I don't think that frequent re balancing such as annually does much from a total return standpoint.Quite frankly I can not understand the yearly rebalance - what does a date in the calendar have to do with the relative valuations?

My approach is to use wide bands of 10% so that basically I do nothing until the 10% band is exceeded. Since I ER'd in December of 2002 I've re balanced twice. My equity allocation exceeded the 10% band in early 2007 (At that time my equity midpoint was 60%) so I sold out to my equities midpoint which was nice come 2008. In early 2009 I was getting ready to sell bonds and buy equities but as I was getting ready to pull the trigger in March 2009 equities started going up. I sold again in 2010 to get my equity balance to 50% on account of my age (I turned 60 in 2010) and I intend to keep the 50% equity allocation indefinitely. I normally do my reallocation selling/buying is in tax advantaged accounts.

The above approach is my version of sell high and buy low and so far so good.
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Old 01-18-2012, 08:08 PM   #24
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Quote:
Originally Posted by NW-Bound View Post
...(snip)...
Anyway, John Neff said one should not be too greedy. He said one should always "leave something for the next guy", and that he was never "smart enough to get out at the very top". He said he'd rather sell too soon than too late.
In 1987 the market peaked in August with a fantastic run, then went down and really cratered in mid-October (down 22% in October). Tough to get that timing right. Any rebalance scheme should consider periods like this.
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