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When to sell ?
Old 03-08-2010, 12:56 PM   #1
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When to sell ?

I bought a stock several months ago and it is having a great run up . It is now at ten times the price I paid . I've been thinking of selling some just to recoup my initial investment and let the rest ride . So my question is when do you sell a hot stock ? I would hate to ride it up and then ride it down again .
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Old 03-08-2010, 01:01 PM   #2
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Originally Posted by Moemg View Post
I bought a stock several months ago and it is having a great run up . It is now at ten times the price I paid . I've been thinking of selling some just to recoup my initial investment and let the rest ride . So my question is when do you sell a hot stock ? I would hate to ride it up and then ride it down again .
I would take out the original investment plus 50% of the gains. I know it will be ordinary income, but like Baron Rothschild always said:

"Fortunes have been made by selling too soon".......

Sounds like you don't have much emotional attachement to it, which is good.............
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Old 03-08-2010, 01:09 PM   #3
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Quote:
Originally Posted by Moemg View Post
I bought a stock several months ago and it is having a great run up . It is now at ten times the price I paid . I've been thinking of selling some just to recoup my initial investment and let the rest ride . So my question is when do you sell a hot stock ? I would hate to ride it up and then ride it down again .
I would definitely take at least my initial investment out.

10X is pretty incredible! Especially for just a few months. Yeah, I think I would probably take out at least half. FinanceDude's advice seems pretty good.

Audrey
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Old 03-08-2010, 01:16 PM   #4
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What Audrey said...
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Old 03-08-2010, 02:04 PM   #5
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I am definitely going to take out the initial investment plus some . During the tech run up I was in an investment club we had bought Oracle very low and it got to be a huge percentage of our portfolio we finally voted to sell a lot of it and the rest is history . We all made a good chunk of money and got out before it dropped .
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Old 03-08-2010, 02:54 PM   #6
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What's it worth using a conservative valuation based on earnings, book value, or however you value the company?

Only sell it if IYO it's worth less than what the share price is currently.
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Old 03-08-2010, 03:05 PM   #7
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I disagree with cardude. IMHO, only sell ALL of it if IYO it's worth less than the share price currently. Unless, and maybe even if, you think it's still undervalued, diversify. Exogenous variables can impact even intelligent decisions for the worse.

10X return is great offence. Good thinking on not neglecting the defence as well.
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Old 03-08-2010, 04:11 PM   #8
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Who says you have to sell any right now.... where are you going to put the money

If I were you, I would put a stop loss at a point that I would want to make sure I sold a certain amount... say current price -10% with how much profit you have... IF it comes down, you still make a good amount.. IF it goes up, then you still have all your money in the game...

IF it stays the same... well, you might be able to wait until 12 months have gone by and get long term capital gains.... that is worth some money in itself....
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Old 03-08-2010, 04:15 PM   #9
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As cardude said if at the time you bought the stock you thought it was worth X and it is still less than , that I would hold.

Assuming that you didn't expect it to go up 10x, I think this is a classic case for using a options to create a Collar. This of course assume that stock options are traded on the stock.

The basic idea would to write a covered call slightly above the current price, while simultaneously purchasing a put slightly below the current price. Assuming you bought it prior to Jan 22nd of this year you could use Jan 2011 options to insure that you get capital gain treatments.

Here is example you bought the stock for $5 and it is currently trading at $53. You write a Jan 2011 call with a strike price of 55, while purchasing a Jan 2011 put with a strike price of $50. Generally speaking the put will cost approximately $5/share, while you will earn approximately ~$5 for writing the covered call so the option prices will approximately cancel out.

Lets fast forward to Jan 2011 and look at 3 scenarios.
1. The stock is between $50 and $55 neither options gets exercised.
2. The stock is $70. Your put options is worthless and the call option is exercised. You will pay LT cap gains on the exercise price $55 + option premium $5 less the cost. The put will be treated as a short term capital loss.
3. The stock is $35 The put option is exercised and you receive $50, the covered call expires worthless. The tax treatment in this case is quite complicated and you would want to consult with a CPA or at least go to a place like Fairmark..

Another alternative is in Dec to look at your overall tax situation rather than waiting for Jan 2011 expiration, it is likely that either the put or call is in the money and can buy or sell depending on your tax situation In general using long term option do provide an opportunity to translate short-term gains in this situation into long term gains with modest risk. Of course if you still have Long-term capital losses carryonvers from 2007, like I do who cares
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Old 03-08-2010, 04:44 PM   #10
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The sell decision is easy if you had an original price target in mind when you bought the stock. I suspect you didn't get in to this investment expecting a 10x price increase, so I also expect it is now pricing above what you think the company was originally worth. So unless you have reason to revise your price expectations upwards, then it sounds like a good time to sell 100%.

A simple question to ask of any investment is "Would I buy it again at today's price?". If the answer is "No" then you should sell it.
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Old 03-08-2010, 04:55 PM   #11
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Originally Posted by clifp View Post
As cardude said if at the time you bought the stock you thought it was worth X and it is still less than , that I would hold.

Assuming that you didn't expect it to go up 10x, I think this is a classic case for using a options to create a Collar. This of course assume that stock options are traded on the stock.

The basic idea would to write a covered call slightly above the current price, while simultaneously purchasing a put slightly below the current price. Assuming you bought it prior to Jan 22nd of this year you could use Jan 2011 options to insure that you get capital gain treatments.

Here is example you bought the stock for $5 and it is currently trading at $53. You write a Jan 2011 call with a strike price of 55, while purchasing a Jan 2011 put with a strike price of $50. Generally speaking the put will cost approximately $5/share, while you will earn approximately ~$5 for writing the covered call so the option prices will approximately cancel out.

Lets face forward to Jan 2011 and look at 3 scenarios.
1. The stock is between $50 and $55 neither options gets exercised.
2. The stock is $70. Your put options is worthless and the call option is exercised. You will pay LT cap gains on the exercise price $55 + option premium $5 less the cost. The put will be treated as a short term capital loss.
3. The stock is $35 The put option is exercised and you receive $50, the covered call expires worthless. The tax treatment in this case is quite complicated and you would want to consult with a CPA or at least go to a place like Fairmark..

Another alternative is in Dec to look at your overall tax situation rather than waiting for Jan 2011 expiration, it is likely that either the put or call is in the money and can buy or sell depending on your tax situation In general using long term option do provide an opportunity to translate short-term gains in this situation into long term gains with modest risk. Of course if you still have Long-term capital losses carryonvers from 2007, like I do who cares
Interesting, but I doubt Moemg wants to deal in options.......
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Old 03-08-2010, 05:08 PM   #12
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Interesting, but I doubt Moemg wants to deal in options.......

Absolutely correct Finance Dude ! I did put in a sell order at a higher price for some of the shares . That will recoup my orginal investment plus a nice chunk . The rest I will let run for a while . This is not a stock for the long run .
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Old 03-08-2010, 05:21 PM   #13
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I always had a target price, based on earnings mostly, for selling in my tech stock days. That was after the crash, not before. If the market's expectations are high, that's a good time to sell. Nothing wrong with selling some and letting the rest ride if the stock still looks good. But they can go down fast as well as up.
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Old 03-08-2010, 06:19 PM   #14
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I'd sell at least half.

A 10x run up in a few months is absolutely, freako-nomically, amazing performance - the heavens are smiling on you. What are you waiting for - absolutely, freako-nomically, wondermatically, amazing performance, and the heavens of all religions to smile simultaneously??

My SIL had a ten-bagger penny stock. She ended up riding it all the way down to zero. I didn't find out until she called, asking how you go about selling a stock that doesn't seem to be trading anymore... (yes, I explained how you could claim the loss).

These don't come around often, take a good portion of the gains. Even if you could have done better hanging on, you will still do great. Guaranteed. It's not often one can say "guaranteed".

I know you said you wouldn't do options, but there is a very simple way to do them in this case. Probably not what you think at all. You buy insurance, right? It is the same concept, w/o all the fine print - really simple. You just buy a 'put'. They are very simple - you pay a fee and you get insurance against the stock dropping below the contracted 'Strike Price' (which you probably pick a little below the current price). If the stock drops, you have the 'option' of selling it at that contract price. An example is easier:

So let's say the stock is trading at $100. You would pay $X for a put at a Strike Price of, say 90. If the stock drops below 90 at any time during your contract, you pull the plug and the option buyer has to pay you $90 for your stock. No ifs/and/buts. But you are out your $X in 'insurance payment.

In some ways, it is better than a stop loss order. If the stock gets hit with bad news over a weekend, and opens at $10, your stop loss will fill at $10, even if you set it at $90. With the put option, you still get your $90 (or whatever you contracted for). I actually had a stock drop in half on after-the-market news. Nothing I could do, nothing a stop-loss order would do other than lock in my loss. And it did come back, eventually (and then some).

If you give us a ticker symbol, we can point out some for you.


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Only sell it if IYO it's worth less than what the share price is currently.
Well, the market thinks it is worth its current price. The market really doesn't care what moe thinks, even if she's right.

Up to her of course, but 'guaranteed' is a very nice word, especially when it is a real iron-clad guarantee. I coulda, shoulda, woulda does not sound so nice. BTDT.


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Old 03-08-2010, 06:37 PM   #15
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It is too bad options have such bad rap. While I understand that a lot of people consider them (for good reason ) a form of gambling. The use of defensive options like buying protective puts or writing covered calls actually reduces risk and volatility. While it may or may not make sense in this case... I think they are worth learning about for anybody who takes an active approach to investing.

You indexer can forget about them

I am quite happy I didn't sell all or even most of my Intel shares when they went up 10x,, of course that took many years not months. I've had stocks triple in a few months but never 10x.
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Old 03-08-2010, 06:40 PM   #16
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So what is the ticker symbol ?

Just kidding. I don't play with individual stocks, so no answer required. Ssssshhhhh.

Congratulations on your choice and 10x return.
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Old 03-08-2010, 06:49 PM   #17
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Congratulations! If nothing else you should be entitled to run around at your next party shouting "Woo-hoo!!"

My favorite quote for this situation is "If you don't know when to sell it, then why did you buy it in the first place?"

It's good advice to recover your investment and take some profits. That way you've more than earned the right to brag on your omniscient decision to buy the stock-- which if done properly on a large Internet discussion board will help blow more air into its bubblicious share price. But maybe I'm preaching to the choir on this one.

There are several approaches to this decision. You could ask yourself if you'd buy more of the stock at today's price. You could reassess the stock's fundamentals and decide if it's (ha!) fairly valued. You could evaluate the technical indicators regarding its buy/sell volume and try to discern whether you're leading the next charge or the only fool left holding the bag. You could ask yourself what your "normal" asset allocation would be for this particular stock. You could ask yourself if you'd miss the money if the stock crashed back below your basis price. You could ask yourself if you're going to wake up every night for the next two weeks wondering whether you should've sold or bought more on margin. Luckily you don't have to ask if you'd kick yourself over investor-psychology loss aversion-- the answer to that is "Yes".

ClifP beat me to the options advice, and I wouldn't disregard that advice just because it seems too complicated. (Hey, FD, is that the advice you give to your clients too?) Investors frequently dismiss the "options option" because it's not always easily done or because you have no idea what you're doing or because it seems too "risky". ("Risky" is a relative term compared to the place you're at now.) However a collar can give you several months to allow yourself to not make a decision, and the cost of the two options commissions is probably nothing compared to the size of the profits.

If you take nothing else away from this experience (aside from the filthy lucre, that is), you have a good educational opportunity to:
1. Learn how to make the sell decision before you make your next buy decision.
2. Learn how to slap a collar on your next ten-bagger puppy.

As for #2, after reading ClifP's advice above, perhaps all that's left to do is to fill out a few forms & a questionnaire on your broker's website to establish options-trading features. That's all it took for me, and I'm glad I took the time to learn about it.

Quote:
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The rest I will let run for a while .
This is not a stock for the long run .
I'm having difficulty distinguishing the specific time interval between those two statements.

After all if you're not in the relationship for the long term then you're just going to get... um, "lucky", yeah, that's the word I was thinking of.
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Old 03-08-2010, 06:54 PM   #18
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I think my uneasiness with this run up is from living through the tech era . When people rode JDS uniphase up and down again . This is not a gigantic amount but it's a nice chunk of change .
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Old 03-08-2010, 06:58 PM   #19
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.

After all if you're not in the relationship for the long term then you're just going to get... um, "lucky", yeah, that's the word I was thinking of.


Thanks Nords,
This is a slam ,bam thank you Mam kind of stock !
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Old 03-08-2010, 06:59 PM   #20
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I generally don't buy speculative stocks, so if I had a 10-bagger, I would have bought it to hold forever. However, what I would do would depend on other factors:

Is this a large amount? If I bought 0.1% of my investment assets worth, then it would only be worth 1%, AND I have carryover losses to offset the gain, then I would probably sell it all now.

If it was a larger amount, then it would depend on how much carryover losses I had to offset the gain. I might sell to offset my short-term losses then wait to sell the remaining shares when they went long term or hold forever if this was not a speculative purchase.

If I had no losses to offset the gain, I would definitely hold until the unrealized gain was long term and then re-decide at that point.
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