painful...

[semtex]

this correction is really painful. here is my story. two main positions:
a, 2007 bot 45k avg @1.2, peak 2.95 2008, low .23 2009, peak 3.25 2010, now 2.2

b, 2008 bot 83k avg@.46, low .03 2009, peak 4.2 2010, now 1.9

still hold it, no ONE share sold. i bumped my head against wall.

here is questions: what's you guys way to take profit? please share...

thx,

 

[LOL!]

What correction are you talking about? Bonds are up this year. Stocks are up since early February. We just had a 10% run-up in the last 2 weeks. Total portfolio is up YTD.

There is a very nice rule on when to rebalance your asset alloction:
For asset classes that have a 20% or more weight in your portfolio (i.e. bonds), rebalance when they are up or down more than 5% of your portfolio value.

For asset classes that have less than a 20% weight in your portfolio (i.e. REITs), rebalance when they are up or down more than 25% of their weight.

This is sometimes called the 5/25 rebalancing rule and is most often associated with Larry Swedroe.

Small caps were up about 20% in April, so that's when I rebalanced (did not sell all positions, but just enough to get back into balance). REITs were up about 15% in April as well, so that meant sell some. Two weeks ago, I bought back into REITs. The rules are simple, unemotional, mechanical, and very helpful.

 

[ziggy29]

My guess is that most folks here "take profits" by periodically rebalancing their portfolio according to some predefined (i.e. non-emotional) strategy. That "takes profits" in that it sells some of what has recently outperformed ("sell high") and buys what is currently "cheaper" because of recent underperformance ("buy low").

 

[semtex]

do not know bonds. only equity, always 100%. and penny stocks only

 

[ziggy29]

do not know bonds. only equity, always 100%. and penny stocks only

This pretty much guarantees that corrections *will* always be painful....

 

[LOL!]

LOL! I applaud you for digging your own grave.

 

[NW-Bound]

You said the above are your two main stock positions, but did not say how much they are in terms of percentage of portfolio.

I myself have no stock position that is more than 5% of portfolio. I do a pretty lousy job of "selling high" and rarely hit the real top. I rode a few down to zero (bankrupt) too. Still, I survived and beat holding the S&P 500. Overall, do I beat Uncle Mick's favorite pffttt Wellesley? Some years I do, some I don't.

But back on your question, usually when I am not too greedy and not trying to time the exact top to sell really really high, I tend to do a lot better.

PS. I hold no penny stocks. At least they weren't when I first bought them!

 

[yakers]

I don't 'take profits' in the classical sense. I am in withdrawal phase and selling of some assets to cover costs not covered by our pensions. In 2009 this came from selling UST stock when it was bought out by MO, 2010 is covered by some IRA withdrawals and selling off gold coins. Also will be selling ibonds but that is to cover sons college costs.2011 is covered by pensions and a stock sale of BWA (sold this year and set funds aside for 2011). So I look at our pension and our 'portfolio' of taxable, tax deferred and tax free accounts and sell off what looks appropriate at the time to keep us in the 25% tax bracket.

 

[semtex]

what's that about? we each have one, sooner or later

 

[semtex]

Now my way to take profit: TA(new high, price/vol) FA(fair value, like PE 10 ~ 15). But not work well. Many times after I sold off, stocks keep the up trend. Worst case, Boom, sold 2.2, then it up to 70+. Only good thing is I did not bet big on it.

 

[brewer12345]

here is questions: what's you guys way to take profit? please share...

thx,

When I buy individual equities or bonds, I have a "fair value" in mind at whick point I will sell. Sometimes this varies with the environment, such as my holding in CHK may have a sell point that varies with natural gas prices. Bonds are usually easy: buy at a discount and sell when they hit par/call price/spread-based target. And if you do not sell at least they eventually mature and solve the sell issue for you. Equities require more discipline and I think it is crucial to have a sell target in mind when you buy. The sell target might later get adjusted if the fundamentals change, but you need to have one.

But having a valuation target is important because otherwise you may hold through the leap and watch it go back to bing a bargain again. I am still working on improving my sell discipline, but I am getting better. I bought AIZ in late 2008 at 13 bucks and change with the idea that it was really worh triple that. The stock has been getting really close to my sell target without a significant change in the fundamentals, so on Thursday I sold june 37.50 calls on a bit over half my position for a buck a share. I find that covered call writing that gets you (all-in) your target sell price helps a lot with sell discipline.

 

[Rich_by_the_Bay]

There is a very nice rule on when to rebalance your asset alloction:
For asset classes that have a 20% or more weight in your portfolio (i.e. bonds), rebalance when they are up or down more than 5% of your portfolio value.

For asset classes that have less than a 20% weight in your portfolio (i.e. REITs), rebalance when they are up or down more than 25% of their weight.

This is sometimes called the 5/25 rebalancing rule and is most often associated with Larry Swedroe.

That is an easy rule of thumb and sounds rational. Do you know if it has ever been tested or back-tested?

My sense is that any method that does not depend on speculation, but relies on objective, non-manipulable variables would be equivalent. (such as rebalancing every two ears on a fixed date, every election year, etc.).

 

[semtex]

I become kind of sloppy when one holding got big up, for example, 2 or 3 bagger, for I know hard to lose. but this time really hurts me. the 2 mainly are in the Roths.

 

[dex]

t
here is questions: what's you guys way to take profit?

Maybe when you do take a profit you can buy some capital letters.

 

[LOL!]

That is an easy rule of thumb and sounds rational. Do you know if it has ever been tested or back-tested?

My sense is that any method that does not depend on speculation, but relies on objective, non-manipulable variables would be equivalent. (such as rebalancing every two ears on a fixed date, every election year, etc.).

Lots of studies about rebalancing with various (but mostly similar) conclusions:
Determining the Optimal Rebalancing Frequency - WiserAdvisor.com University

http://web.archive.org/web/20050213200611/http:/www.firstquadrant.com/PDFs/Monographs/9203mono.pdf

See also (this is what I use):
http://www.tdainstitutional.com/pdf/Opportunistic_Rebalancing_JFP2007_Daryanani.pdf

 

[Rich_by_the_Bay]

Lots of studies about rebalancing with various (but mostly similar) conclusions:
Determining the Optimal Rebalancing Frequency - WiserAdvisor.com University

Thanks. I like their conclusion:

Conclusion
The analysis conducted for this research coincides with other industry research suggesting that the method and frequency of rebalancing is insignificant, as long as an investor employs a rebalancing discipline. Contrary to popular belief, rebalancing does not appear to enhance investment returns. However, it has proven to significantly reduce volatility. This reduction in volatility has tended to occur in down markets.

We believe the most optimal rebalancing discipline, after considering taxes and transaction costs, is a 5 percent trigger. Based on our study this method has proven to perform in line with other methods and its smaller number of rebalancing instances (as compared with a quarterly or annual rebalancing method) will significantly reduce transaction costs and taxes. When considering taxes, a quarterly or annual rebalancing method is more apt to recognize short-term gains, a more costly taxable gain, than a 5 percent rebalancing trigger, which is less likely to recognize short-term gains. The negative side of a 5 percent rebalancing frequency is that it is not as static or automated and places greater responsibility on the investor and their financial advisor to periodically review their asset allocation to ensure a trigger has not been violated...

 

[ERD50]

I'm really confused. You have two holdings up almost double and quadruple in a couple years, and you feel 'pain'?

And you are asking US for advice??

Oh well, my 2 cents anyhow: When an investment does significantly better (say 2x) than the S&P500 over the same time-frame, I take my profits. I probably got lucky, so why risk it?

Two more pennies, just IMO, but I fail to see how anything qualifies as 'fair value' other than the current bid/ask price. That's where the rubber meets the road. My Dad used to say something like that when someone would tell them how much they put into a car or whatever, so it was 'worth X amount'. He would say, "It's only worth what you can get someone to pay you for it".

-ERD50

 

[easysurfer]

I rebalance usually once a year, unless things get out of whack (drift) too much before. First, I rebalance within IRAs (have IRAs in each asset class) to minimize taxable events, then later rebalance outside of IRAs if needed.

 

[semtex]

Two more pennies, just IMO, but I fail to see how anything qualifies as 'fair value' other than the current bid/ask price.
-ERD50

if you are an efficiency/random walk believer, we live in the parallel space

double/tripple is not a rare thing in the penny world. see my position B, it down to 3 cents then up to 4.2 bucks. I have to lose 90+% before the 9+ times up.

 

[brewer12345]

Two more pennies, just IMO, but I fail to see how anything qualifies as 'fair value' other than the current bid/ask price. That's where the rubber meets the road. My Dad used to say something like that when someone would tell them how much they put into a car or whatever, so it was 'worth X amount'. He would say, "It's only worth what you can get someone to pay you for it".

-ERD50

You are entitled to your opinon. Personally, I am generally a deep value investor and willing to do significant analytical work to figure out companies/situtations that may be small cap with little or no institutional following. That means I am trying to play in situations where there is market inefficiency and I can buy assets for a significant discount of what a more efficient market might value them. So I will typically come up what I think an "efficient market" valuation would be before I buy anything and use that (possibly with a haircut) as what I think the asset is worth.

 

[ERD50]

You are entitled to your opinon. Personally, I am generally a deep value investor and willing to do significant analytical work to figure out companies/situtations that may be small cap with little or no institutional following.

Yes, I suppose it can be done in areas that are not followed by the big guys, and where one may have some specific knowledge of the industry. But I doubt that applies to someone looking for penny stock advice from a largely B&H board (though it could). That's real work.

Even then, I still have to wonder if one can overcome the old adage that "markets may remain irrational longer than I can remain solvent". I guess I express that concern as - if the market doesn't value it 'fairly' now, what makes me think they will change before I give up on it?

If it's working for you, that's great, but I do think it is rare. Not that have any stats to be able to back that up, just a general observation. Again, just opinion and 2 cents thrown in.

-ERD50

 

[brewer12345]

Yes, I suppose it can be done in areas that are not followed by the big guys, and where one may have some specific knowledge of the industry. But I doubt that applies to someone looking for penny stock advice from a largely B&H board (though it could). That's real work.

Even then, I still have to wonder if one can overcome the old adage that "markets may remain irrational longer than I can remain solvent". I guess I express that concern as - if the market doesn't value it 'fairly' now, what makes me think they will change before I give up on it?

If it's working for you, that's great, but I do think it is rare. Not that have any stats to be able to back that up, just a general observation. Again, just opinion and 2 cents thrown in.

-ERD50

Assuming you can do the due diligence and get it right, the major risk is how long it takes for the market to appropriately value what you bought cheap (sometimes never). The longer you wait, the lower your return. I generally buy with the expectation of being patient. Example: Around early 2001 I sarted buying a whole wad of shares of PPD, which was the highest market cap company with no analyst coverage at the time. There were a ton of shorts in the name and lots of bad press, including an accounting scandal. But I did some digging and figured out that the company was a cash cow, likely worth $40 or so vs. the teens when I started buying. I held for 4 or 5 years and the company ultimately bought back so mch of its own stock hat they triggered a short squeeze. I sold out in the low 40s, but it got squeezed as high as 70 before settling back to the 40s. I got a pretty decent return out of the stock, but it would have been alot more lucrative if it had only taken 2 years to get to fair value and a lot less if it took 10 years.

 

[semtex]

here is the hard part. when a stock goes higher and higher, usually higher er/sales. but same time, some hyper too, like new product, move the main board instead of being OTC. Very easily the fair value in my mind becomes inflated.

 

[brewer12345]

here is the hard part. when a stock goes higher and higher, usually higher er/sales. but same time, some hyper too, like new product, move the main board instead of being OTC. Very easily the fair value in my mind becomes inflated.

I suffer from the same affliction. The antidote seems to be to let at least part of your stake go at what you originally though the fair value of your investment was when you bought it. "You get rich by selling early."

 

[NW-Bound]

...Always leave some gains for the guy you are selling to.

The above post is from another thread. I have read the same thing from John Neff, a former long-term manager of the Windsor MF. I guess what it means is that it is OK to sell early. Neff said that he could never get out at the very top; he said he was not that smart.

Occasionally, I got lucky with a good position. I would sell half to recover my cost and ride the other half a little longer.