How to know when to take a profit

[NW-Bound]

Yep, when a stock is performing well, the price is high, when it falters, the price is low. So, I just buy high and sell low.

That's it in a nutshell.

If you don't buy good stocks and sell bad ones, what else should you do?

 

[RetiredHappy]

One thing which we are struggling with currently is in revamping our investments. The market seems too high for us to put more money into equities and bonds returns are terrible. Then this little voice in my head whispers "Time in market, not timing market".

 

[ERD50]

Quote:
Originally Posted by travelover View Post
Yep, when a stock is performing well, the price is high, when it falters, the price is low. So, I just buy high and sell low.

That's it in a nutshell.

If you don't buy good stocks and sell bad ones, what else should you do?

Decades ago, I recall listening to some financial radio show, and this little story stuck in my head:

The radio host (an FA) said one of his clients pointed out a half dozen stocks that whose NAV had gone up tremendously in the past 5 ~ 10 years. Why didn't the FA put him in these great performing stocks? The client was upset.

So the FA said, OK, but you had told me you were more interested in being conservative with your account. If you are now looking for big gains, I have some suggestions. The FA went on to talk about six stock picks for the client, and they sounded just awful. Revolving doors of CEO and top management, lawsuits, embezzlement, competitors poised to knock them out of the market, several were on the brink of bankruptcy, trading as penny stocks.

The client said "Those sound like terrible investments! Why the heck would I want to own those! What are you doing?"

The FA replied "I just described those six stocks you pointed out as winners, and the state they were in back when I would have had to buy them to make the kind of profits you talked about.

So the moral is, it makes little difference if it is a 'good' company or not. The price (usually) reflects the expected outcome. A stock with good outlooks demands a high price. It has to continue to perform well just to meet expectations (we've all seen the company that announced record earnings and had the stock price drop, because those record earnings didn't meet expectations of even higher record earnings). So you might have to pick 'bad' stocks that end up doing good. Trying to time those, against the crowd, is a tough thing to do on any sort of regular basis.

-ERD50

 

[reneeh63]

Many of these responses seem to be specific to when do you know when to sell ALL of a position in something - to actually get out entirely. Hence advising to based on when it is overvalued, etc. This seems consistent with a buy and hold strategy - if the investment no longer is in line with your investment philosophy, get rid of it.

I'm more interested in what do you do with perhaps more speculative investments like crypto, for example. It's very volatile. So let's say it went up 50%...should you take "some of your winnings off the table"? As a way to control risk.

You don't have to "let it ride" or play "double or nothing", right? So what is a sensible strategy along the lines of "when it's up 50% then sell 25% of your initial investment"?

 

[jasonfreedom]

I used to focus primarily on equities, specifically individual stocks rather than funds or indexes.

Although not very mathematical, I would sell when I stopped believing in the management.
(Also, a good management team is why I would buy a company in the first place)

This has generally worked well - GE became worse and worse as its senior execs left, Disney did great under Bob Iger, and Ford lost most of its lustre after Alan Mullaley left.


The same would generally apply to crypto - I am a big believer in Gavin Wood for Polkadot, and I got out of Sushiswap after 0xMaki stepped down, for example. But, because it is so volatile... yes I do plan to take part off the table, at a certain point, so I am only playing with the house's money. What that point is...well that's the magic equation. You can do technical chart analysis, or you can read the vibe of the market, or you can set sell limits at the time when you buy. I do the latter two. I pay attention to influencers whom I respect, and not the pumpers. If you can tell the difference, and listen to the smart people, you might just do well.

 

[Fleur58]

I was sorry I didn't follow advice and take profits from some of my Mutual Funds in 2008 before the crash. The funds all sunk and then recovered. In 2014 they had recovered so much that I realized the profit was enough to pay off my house. I decided to sell some of them them and use proceeds to payoff my house. I had a large bonus coming in 2015 which covered the tax bill from the capital gains. Not sorry I did it. I was able to increase my investments after that with no mortgage to pay.

 

[ERD50]

I was sorry I didn't follow advice and take profits from some of my Mutual Funds in 2008 before the crash. The funds all sunk and then recovered. In 2014 they had recovered so much that I realized the profit was enough to pay off my house. I decided to sell some of them them and use proceeds to payoff my house. I had a large bonus coming in 2015 which covered the tax bill from the capital gains. Not sorry I did it. I was able to increase my investments after that with no mortgage to pay.

Do you really not see the flaw in that "logic"? Think about it. Amazingly to me, this has been repeated by other posters as a justification for mortgage pay-off.

And the S&P has about tripled since 2014-2015, so there's that.

-ERD50

 

[pjigar]

+1

Then buy it again once it reaches bottom, just before it starts back up.

Lol. Stop harassing OP!


On a serious note, "taking profit" is the term media use to sell news. THe only time you can "take" profit is when you spend the money received from the assets sold. Otherwise you are just swapping one paper gain/loss for another paper gain/loss. Like the others said, don't change the investment unless your investment goals and/or prospects of a given investment have changed. People who stay invested longest generally come out ahead then the rest of the population.


Schwab has an article that compares several different investing styles. The results might surprise you: https://www.schwab.com/resource-center/insights/content/does-market-timing-work

 

[Time2]

[/B]

You can sell and have a wad of money now. The trick is when do you buy back?

That was me back in Feb/ Mar of 2020. I sold a good bit of mutual funds on the way down. My fear was when do I get back in. It was fear of missing out that got me to buy back in. So I sold in fear and I bought in fear.
Kind hate to say it, but glad I can. It was profitable.

 

[Lawrencewendall]

Lol. Stop harassing OP!


On a serious note, "taking profit" is the term media use to sell news. THe only time you can "take" profit is when you spend the money received from the assets sold. Otherwise you are just swapping one paper gain/loss for another paper gain/loss. Like the others said, don't change the investment unless your investment goals and/or prospects of a given investment have changed. People who stay invested longest generally come out ahead then the rest of the population.


Schwab has an article that compares several different investing styles. The results might surprise you: https://www.schwab.com/resource-center/insights/content/does-market-timing-work

Great article. Thanks!

 

[NW-Bound]

Lol. Stop harassing OP!

I was never good at selling, I couldn't be a trader, I seem to have a good record on buying but no effective system for selling. I intend to hold 'forever' even may leave assets for inheritances. So when I need money as when we bought a house a few years back I had to figure out what to sell and that is much driven by trying to minimize capital gains taxes. And RMS/QCDs from IRAs are sold off to somewhat balance our asset allocation.

Seriously, unless you are an indexer and let the other players do the rebalancing between winning and losing stocks for you, if you own individual stocks, you have to know if a stock prospect has changed, and it's time to move on. Or many times, if a stock becomes overvalued and the crowd clamors to buy, buy, buy at any price, it's also a good time to "let them have it".

Many years ago, I read a memoir by John Neff, a successful MF manager at Vanguard who ran Windsor fund. Neff's style was value investing, meaning he would not chase growth stocks.

Neff said he could not and did not expect to buy exactly at the bottom, nor to sell at the top. About selling, he said he always "sold too soon". He said there was nothing wrong with leaving something for the next guy.

I looked on the Web, and found out that this philosophy predates John Neff.

“I will tell you my secret if you wish. It is this: I never buy at the bottom and I always sell too soon.” – Baron Rothschild

Neff retired in 1995, and died in 2019. I bought his book, which was published soon after his retirement. Just looked around the house, and have not located it.

 

[ragabnh]

I got rid of all my bond funds a year ago, now all stock index funds, could not be happier with my decision.

 

[travelover]

I got rid of all my bond funds a year ago, now all stock index funds, could not be happier with my decision.

Excellent idea, much better than market timing.

 

[pjigar]

Seriously, unless you are an indexer and let the other players do the rebalancing between winning and losing stocks for you, if you own individual stocks, you have to know if a stock prospect has changed, and it's time to move on. Or many times, if a stock becomes overvalued and the crowd clamors to buy, buy, buy at any price, it's also a good time to "let them have it".

Many years ago, I read a memoir by John Neff, a successful MF manager at Vanguard who ran Windsor fund. Neff's style was value investing, meaning he would not chase growth stocks.

Neff said he could not and did not expect to buy exactly at the bottom, nor to sell at the top. About selling, he said he always "sold too soon". He said there was nothing wrong with leaving something for the next guy.

I looked on the Web, and found out that this philosophy predates John Neff.

“I will tell you my secret if you wish. It is this: I never buy at the bottom and I always sell too soon.” – Baron Rothschild

Neff retired in 1995, and died in 2019. I bought his book, which was published soon after his retirement. Just looked around the house, and have not located it.

Yes, swapping securities is necessary for individual stock investing. OP mentioned mutual fund and hence my response.

 

[NW-Bound]

I forgot to mention the reason for John Neff's fame.

From Wikipedia:

John B. Neff, CFA, (September 19, 1931 – June 4, 2019) was an American investor, mutual fund manager, and philanthropist. He was notable for his contrarian and value investing styles as well as for heading Vanguard's Windsor Fund.

Windsor became the highest returning, and subsequently largest mutual fund in existence during Neff's management, eventually closing to new investors for a period in the 1980s. Neff retired from Vanguard in 1995. During Neff's thirty-one-year tenure at Windsor (1964 to 1995), the fund returned 13.7% annually versus 10.6% for the S&P 500.

 

[TrophyHusband]

I bought $100K of Netflix (NFLX) in 2014 when it was $47/share. It is now worth ~$680/share. Over the years we have sold off some of the shares to lessen our exposure, pay off the mortgage and to purchase some investment properties.

Even though it'd be nice to have kept all those shares, the decision we made at the time was the right one. NFLX was becoming too big a portion of our portfolio so we diversified into less risky assets. Even now, after selling off 40% of our original shares we have about $1M of NFLX and it is about 20% of our overall portfolio.

For us, we took a profit when we started sleeping less comfortably at night knowing so many eggs ($) were in one basket (NFLX).

 

[2177V]

I'm not talking about day trading or even any short-term gain, but a stock or mutual fund you have held for 10 years. I have a mutual fund that is about to double, and in the back of my mind think it is time.

Realize might be other threads on this topic in the past. If so, just direct me to those.

For long term investments, I tend to buy and hold except for the rare times when There is a fundamental change in the market which may affect my long term investments and there is a better long term investment.

For a IRA you can make changes with much tax impact unless you withdraw. For taxible accounts, it is more complicated. You provide too little details on your investments, IRA or taxible, and your financial goals with this investments.

My short term investments tend to be speculation which is close to gambling. When I gamble at a Casino, seems like if I am ahead and quit early, I made money. If I continue to gamble, I seem to lose. Therefore I set a sell price and if reaches that sell price I commit to it.

 

[FIREarly]

I'm not talking about day trading or even any short-term gain, but a stock or mutual fund you have held for 10 years. I have a mutual fund that is about to double, and in the back of my mind think it is time.

Realize might be other threads on this topic in the past. If so, just direct me to those.

If it's TSLA, HOLD!! Unless you need the money.

 

[GoodLife59]

Mutual funds are set up to meet specific goals as described in its prospectus and use a diverse set of investments to achieve those goals. You’re describing a single issue stock style tactic. Do you work with a financial adviser?

 

[slatoid]

If Invested in a Disruptive Company…

Like Tesla, that is currently disrupting auto and energy (or Apple when it introduced iPhone, or Netflix when it began streaming, etc…) sell it only when you need the money.

 

[m3bs]

I’m lousy at selling, but I’ve done a pretty good job of holding, and it’s paid off handsomely with AAPL, NVDA and MSFT, and several others. Recently I’ve been thinking about selling everything and taking my licks while CG taxes are still low, then jumping back in with a clean slate at the next big pullback. I would probably miss out on some gains if the market continues higher, but I don’t need the money now and I’m convinced the current administration is foaming at the mouth over those unrealized gains. I’m certainly not in danger of being a target of their billionaire taxes, but I figure the 15% CG rate won’t survive even a “moderate” tax policy change. I just hope they don’t make it retroactive….

 

[FIREarly]

Like Tesla, that is currently disrupting auto and energy (or Apple when it introduced iPhone, or Netflix when it began streaming, etc…) sell it only when you need the money.

The President's current Infrastructure bill looks to help the positive disruption even more. Tesla might be getting federal tax credits again!

Back to topic of selling stocks.

I recently sold all of my crypto before it rose again. Stinks that it went up more but figured it would happen at some point. Want to buy a RE property.

 

[RetiredHappy]

I’m lousy at selling, but I’ve done a pretty good job of holding, and it’s paid off handsomely with AAPL, NVDA and MSFT, and several others. Recently I’ve been thinking about selling everything and taking my licks while CG taxes are still low, then jumping back in with a clean slate at the next big pullback. I would probably miss out on some gains if the market continues higher, but I don’t need the money now and I’m convinced the current administration is foaming at the mouth over those unrealized gains. I’m certainly not in danger of being a target of their billionaire taxes, but I figure the 15% CG rate won’t survive even a “moderate” tax policy change. I just hope they don’t make it retroactive….

Ah, but if you never need to sell (most of) the positions, you won't incur CG. In our case, the plan is for our accounts to pass down to our heir and if the step up on cost basis remains, then CG is wiped off entirely.

 

[m3bs]

Ah, but if you never need to sell (most of) the positions, you won't incur CG. In our case, the plan is for our accounts to pass down to our heir and if the step up on cost basis remains, then CG is wiped off entirely.

Hopefully that works out for you and your heirs. They are coming after the step-up provision as well, so I wouldn’t count on it.

 

[RetiredHappy]

Hopefully that works out for you and your heirs. They are coming after the step-up provision as well, so I wouldn’t count on it.

The wind changes with each administration. Who knows what the future holds?