The hardest part of investing

[brewer12345]

I am struggling with a sell decision, as I always do. Selling is clearly the part of investing that is the hardest for me. By the time I buy something, I am convinced it is a good buy and will remain so for the long term. However, sometimes stocks get bid up to ridiculous levels, and I am less than wonderful at letting go. How do others deal with sell discipline?

 

[azanon]

Are you talking about an individual stock or a mutual fund?   If mutual fund and just stocks in general, I personally use a timing method that takes the emotions out of it.   

I use a variant of Charles Givens', Money Movement Strategy, which is a timing method centered around the current prime interest rate and its direction.  This method just seemed logical to me having read his book, so i'm currently using it.   Going by this method, one would be (completely) in stocks now.

Timing methods that eliminate the emotions have the potential to be very effective since i believe most "market-timers" that do the most damage to themselves are the ones that are making their decisions partly or completely on their own subjective emotions and/or what they personally think.  With a quantitative method, you might still end up doing bad, but you can know for sure it wasnt due to emotions.

 

[brewer12345]

Are you talking about an individual stock or a mutual fund?   If mutual fund and just stocks in general, I personally use a timing method that takes the emotions out of it.   

I use a variant of Charles Givens', Money Movement Strategy, which is a timing method centered around the current prime interest rate and its direction.  This method just seemed logical to me having read his book, so i'm currently using it.   Going by this method, one would be (completely) in stocks now.

Timing methods that eliminate the emotions have the potential to be very effective since i believe most "market-timers" that do the most damage to themselves are the ones that are making their decisions partly or completely on their own subjective emotions and/or what they personally think.  With a quantitative method, you might still end up doing bad, but you can know for sure it wasnt due to emotions.

I'm not a market timer, I am a vaulation based bottom fisher. I don't buy into the black box mechanical systems. My problem can basically be summed up b saying that I am really good at telling when a business is being sold too cheap, but I am not so good at telling when it is too expensive.

 

[riskadverse]

Selling is indeed one of the harder aspects of investing / trading to master.  The aversion to selling is usually an ego thing - accepting a loss or watching the stock continue to rise.  The best way to get around this is to do as Azanon suggests - design a mechanical system to dictate when to sell.  Look at the transactions you consider to be your "sell failures" and try to design a system to correct those.  If you can devise a system, then incorporate it and use it.  Your system can be anything from never sell to sell after 15 seconds.  If you can follow your system, you'll take the emotion out of the decision and more often than not, your decision will be better. 

 

[azanon]

I'm not a market timer, I am a vaulation based bottom fisher.

This is what i read:  I'm not a market timer, i'm a market timer.

Again, are you talking about mutual funds or individual stocks?   If the latter, then yes i can accept that one can buy and sell individual stocks based on knowledge of the company, fundamentials, etc.  

But if you're talking about mutual funds, and you dont buy-and-hold indefinitely (with the exception of systematic rebalancing), then you're a market timer.   We would just differ in our timing methods.

 

[TromboneAl]

If you can't decide whether to hold or sell, sell half.

 

[brewer12345]

This is what i read:  I'm not a market timer, i'm a market timer.

Again, are you talking about mutual funds or individual stocks?   If the latter, then yes i can accept that one can buy and sell individual stocks based on knowledge of the company, fundamentials, etc.  

But if you're talking about mutual funds, and you dont buy-and-hold indefinitely (with the exception of systematic rebalancing), then you're a market timer.   We would just differ in our timing methods.

I'm talking about individual securities, not mutual funds.

I think the ego thing is part of it. I also think that some experiences of being patient and holding through dips have been extremely rewarding, so I tend towards exactly that.

 

[azanon]

Ahh, ok.   Well, i'm really no help to you then.   I"m not going to condemn anyone that buys individual stocks, because i think so highly of stocks anyway.   But i tried my luck at buying stocks for a couple years in the past, and i was only breaking even in the late 90s (basically, i was sucking at it bad).

The way i see it, its me vs, say, Thomas Marcisco (Marcisco funds) with me being spotted a 1% head start (the management fee).   Even with being spotted 1%, Thomas would smoke me big time.   Hence, i dont screw with individual stocks.

(editors note) I own USAA Aggressive Growth, managed (now) by Thomas Marcisco.   As expected, it went from a mediocre at best fund to becoming a great performer.  Thomas was the former manager of Janus Twenty back in the 90s when it consistently beat the S&P500 by 4% plus year after year.

 

[brewer12345]

Ahh, ok.   Well, i'm really no help to you then.   I"m not going to condemn anyone that buys individual stocks, because i think so highly of stocks anyway.   But i tried my luck at buying stocks for a couple years in the past, and i was only breaking even in the late 90s (basically, i was sucking at it bad).

The way i see it, its me vs, say, Thomas Marcisco (Marcisco funds) with me being spotted a 1% head start (the management fee).   Even with being spotted 1%, Thomas would smoke me big time.   Hence, i dont screw with individual stocks.

(editors note) I own USAA Aggressive Growth, managed (now) by Thomas Marcisco.   As expected, it went from a mediocre at best fund to becoming a great performer.  Thomas was the former manager of Janus Twenty back in the 90s when it consistently beat the S&P500 by 4% plus year after year.

That is the same reason I specialize in smaller, unloved stocks. No way I can do better than the many, many lawyers, doctors and analysts following MRK, for example.

 

[saluki9]

I'm not a market timer, I am a vaulation based bottom fisher. I don't buy into the black box mechanical systems. My problem can basically be summed up b saying that I am really good at telling when a business is being sold too cheap, but I am not so good at telling when it is too expensive.

well, you obviously have a fair valuation in mind otherwise you wouldn't consider these stocks unloved. I'd say anytime you get close enough to what you consider is a fair valuation, pull the trigger.

If you're waiting for the market to give your stock a fair valuation, it's no different from a gambler waiting on the next roll of the dice. How many gamblers have gone bust waiting for "one more hand"

In other words, don't get greedy, take your profit and be happy, or realize you made a mistake and move on. Whatever you do, don't get attached to stocks.

 

[yakers]

I am struggling with a sell decision, as I always do.

And: "
I'm not a market timer, I am a vaulation based bottom fisher. "

Boy does this sound like me. Either I'm a "natural" or its as easy as spit to find decent stocks. But I haven't a clue about selling. When I had a Quick & Reily trading account I did pretty well, beat the S&P500 even after trading fees. But I did not have enough to invest and so it just took too much of my time to track the 6 to 10 stocks I owned and a half dozen or more I was watching to buy.
I closed out the account and switched to a DRIP approach as it is a better use of my time and I do not have a set holding period. I'll just hold these as long as I feel they are worth holding and only sell when a life event (like son's college costs or buying a boat..) requires it or they will pass on as an inheritance.
But if you're a bottom feeder sometimes its not hard to find some good buys. Again, its when to sell, maybe that's why I'm not a trader.

 

[wildcat]

By far my biggest mistakes have come from pulling the trigger early. Never a "right" answer to that question if you ask me. You will never go broke making a profit is my answer by default but you will feel pretty damn bad when you let one go too early.

Biggest mistakes -
Bought Abercrombie when everyone hated it @ $10-12 - sold @ $28 b/c I thought it was fairly valued and did not like fashion retail anyway - now $60s

Bought USG when it first declared Chap 11 @ $2-4 - sold $10-12 b/c I was not sure what was going to happen to equity holders - now $59

 

[wabmester]

Brew, you've hit a milestone.   The first step is admitting that you have no idea what you're doing.   Now, go buy and hold some index funds! 

Seriously, stock picking is too hard for me.   Got to know which stock to pick, when to buy, and when to sell.   As I've said before, the odds of getting all three right aren't very good.

Having said that, if you're a value investor, then I like Buffett's strategy.    Buy when you see a good value.   Sell when something fundamental changes.   If nothing has changed but the price, why sell?

Personally, when I sell, it's *always* too early, so I'm slowly learning to just hold unless something about why I bought it in the first place has radically changed.

 

[retire@40]

I'm not into individual stocks anymore, but when I used to buy more frequently, I would always immediately sell at a predetermined price. That took the greed factor and the emotions out of the equation.

 

[brewer12345]

Brew, you've hit a milestone.   The first step is admitting that you have no idea what you're doing.   Now, go buy and hold some index funds! 

Seriously, stock picking is too hard for me.   Got to know which stock to pick, when to buy, and when to sell.   As I've said before, the odds of getting all three right aren't very good.

Having said that, if you're a value investor, then I like Buffett's strategy.    Buy when you see a good value.   Sell when something fundamental changes.   If nothing has changed but the price, why sell?

Personally, when I sell, it's *always* too early, so I'm slowly learning to just hold unless something about why I bought it in the first place has radically changed.

Its my profession, so I'll probably never go over to indexing. I do, however index when I want to invest in an asset class I have no competitive advantage in.

Buffett has the advantage of buying the whole business when he likes it. I don't.

 

[Spanky]

Sell whenever the stocks are no longer undervalued.

 

[TargaDave]

If you can't decide whether to hold or sell, sell half.

I agree with Al completely and I also agree that it is the hardest part of working with individual stocks. Take something off the take to lock in some profits and let the rest ride with some stop gaps if you choose. Doesn't have to be 50%. My Dad does this all the time and I have done it with company stock options in the past. Just like fund reallocation. Sometimes you can find a better value in the same asset clase with the proceeds while sometimes the whole class seems pricy and best to reallocate elsewhere.

 

[unclemick]

Hmmm

I have zilch as a sell discipline - I 'ladder' in via DRIPs for 7-10 yrs and sell when I need the money - the most tax beneficial way for me availible(depending on other income) - usually the doggiest first to minimize cap gains.

Heh, heh, heh - emotionally - is seems the dogs 'always take off - AFTER I sell.

Sell discipline - we don't got no stinking sell discipline!

 

[Jarhead*]

Ahh, ok.   Well, i'm really no help to you then.   I"m not going to condemn anyone that buys individual stocks, because i think so highly of stocks anyway.   But i tried my luck at buying stocks for a couple years in the past, and i was only breaking even in the late 90s (basically, i was sucking at it bad).

The way i see it, its me vs, say, Thomas Marcisco (Marcisco funds) with me being spotted a 1% head start (the management fee).   Even with being spotted 1%, Thomas would smoke me big time.   Hence, i dont screw with individual stocks.

(editors note) I own USAA Aggressive Growth, managed (now) by Thomas Marcisco.   As expected, it went from a mediocre at best fund to becoming a great performer.  Thomas was the former manager of Janus Twenty back in the 90s when it consistently beat the S&P500 by 4% plus year after year.

Azanon: I learned a valuable lesson from Thomas Marcisco, Janus 20, Jim Craig, long time manager of orig Janus, and Janus Worldwide, in the 00 to 03 period.
All 3 of those funds, (and most of Janus funds) in the early 90's overweighted tech stocks in their portfolios. As history played out, resulting in oversized gains (compared to most growth funds).
In the 00 period, 20 was down -31, 01 was down -28, and 03 was down -24. (Effectively giving back their outsized gains of the previous 10 years or so.)Orig Janus, and Janus Worldwide, had similar come-uppance.
Actually, I learned two lessons. Should have rebalanced, and more importantly, had no business at my age to be exposed to that kind of volatility. (I've changed my ways).

 

[Ed_The_Gypsy]

I am with TromboneAl. If the stock doubles, sell half. Now you have recovered the original cost and have no down-side risk--on that stock. (Of course, now you have to find something to do with the cash. )

With mutual junds, mostly index funds, all I have to do is re-balance when they get too off-balance. A difference of 10% is sometimes used as a trigger point, but I let it go more. Studies show that the optimal time period between rebalancing is fuzzy, but is somewhere between one to three or maybe up to five years (I said it was fuzzy).

I have proven that I have no stock-picking skills. I also do not have the time to mess with it. But after I found out about index funds, I feel pretty smart now. 8) Getting rich slow now. (Hope I don't die first.)

Ed

 

[brewer12345]

I sold almost half of my most "generously valued" position that I was getting spooked by. I would have sold the rest yesterday, but volume went to almost nothing and I wasn't desperate enough to sell to move the market in the stock. We'll see what next week bings.

 

[Olav23]

You could also apply many options strategies to protect a position, from the very basic, buy a "put" to various spread strategies. But, if what you said is true as far as the volume not being there and your trade size "moving the market" there is probably not much interest in options on the security.

It does bother me a bit that people always freak out that there is no way to protect a profit in a stock, when that's really the whole point of derivatives (outside of speculation!), isn't it?

 

[brewer12345]

You could also apply many options strategies to protect a position, from the very basic, buy a "put" to various spread strategies. But, if what you said is true as far as the volume not being there and your trade size "moving the market" there is probably not much interest in options on the security.

It does bother me a bit that people always freak out that there is no way to protect a profit in a stock, when that's really the whole point of derivatives (outside of speculation!), isn't it?

Actually, in the case of this particular stock, there are no options available. so there really isn't a way to protect a profit, short of selling.

 

[Olav23]

Then I agree with the other posters. Take as much off the table as makes you comfortable. If it's doubled, taking half is basically "playing with the house's money".
But, you also risk losing all of your profit.

Though if you got into the stock for a particular reason and feel that it still fits those characteristics, I might just apply a "stop loss limit order". If its very non-liquid, which is sounds like since no options, it could definitly gap below your limit price and never sell and you're left holding the bag.

Sounds like a risky, volatile play to me, I'd probably take some chips off the table!

In general I set stop loss limits when I purchase a stock so I don't have to watch it like a hawk, and get a big surprise next time I check my account. I feel buying securities without the stop loss order is a bit like being on a trapeze without a net

You probably know all this already, especially if you are dabbling in the (most likely) small cap illiquid arena of equities already, but who knows who else is reading?