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When do you sell?

edited April 2011 in Fund Discussions
I read a lot about when to buy,i.e. p/e ratios, earnings growth, return on equity, etc. I read very little on when to sell, how do you decide it's time to sell a stock or a mutual fund?


  • Others here are much more skilled than I am in terms of tracking and reading momentum, and even market timing. What I'm learning in this market along the lines of your question is:

    (1) I probably shouldn't buy anything that doesn't have a substantial downside risk component to it -- I'm sure if it was all left to my own devices, I'd panic and buy/sell at the wrong time. That includes me not selling some dogs when I should have (just last week panicked and did not sell a few banking stocks and small cap energy names before earnings season, for example). So, I use AA funds as the core of my portfolio; I let value-focused, risk-adverse managers decide when valuations should lead them out of the market (which in my mind is not the same as market timing). In taxable, the core of my portfolio is First Eagle and IVA's worldwide funds.

    (2) In the non-AA portion of my portfolio, I should have paid more attention to risk tolerance from the get-go (everyone's a hero when the market is going up), and been rebalancing more often -- not enough to feed my obsessive compulsive tendencies, but enough so that I'm sure to capture my winnings and not let the portfolio drift toward a risk profile I'm not comfortable with.

    My wife played it smart from the get-go: she understood that wealth is built as much by not losing money as it is by "taking chances". Whenever we discussed our portfolios and financial future, she consistently opted for less risk-adverse funds. Maybe inflation will eat her alive in the coming years; but she's had a much easier ride than I have since 2007, and has been much less likely to adopt a reflexive, foolish posture when the market does something odd for a week or so.

  • Should have also noted that in the taxable portion of my portfolio, I've put in stop-losses on my equity holdings at about 15% gain level (taking dividends into account).
  • edited April 2011
    A few ideas per your question - not necessarily all inclusive:

    1. Sell (a portion) if a fund grows to an out-sized position according to the metrics you have established in advance.

    2. Sell if the fund begins seriously under-performing and you can identify a likely cause such as new management, added fees, asset bloat, or a change in investment style. However, if the fund has performed well for many years and you can identify no reason for the under-performance, hang with it for at least a couple years. Nobody bats 1000.

    3. Notwithstanding the above, if you can identify a trend that will be adverse to the fund, sell it. This involves forecasting the direction of markets. I'm no good at it. But, if you are, by all means follow your instinct.

  • Howdy,

    Like the others have said, there are many reason why you would sell a fund or any investment. They've covered the bases, so I'll just talk about scaling out of a trade.

    If I'm speculating in some particular asset class, I set mental stop losses of normally 10-15%. If my investment drops more than this, I will sell some 25%. If it drops further, I'll sell another 25% - further and I'll exit the position. Note that at any time if it reverses and starts back up, I can scale back in accordingly.

    I also scale in to an investment this way - after identifying the investment I wish to make, I purchase 25% of my intending play. I'll watch it a week and IF and ONLY IF it makes money, do I buy some more. Never add to a losing play. Never.

    Oh, and don't buy or sell based upon something you heard on TV. The only person you listen to is Captain Price. Don't anticipated a reversal and buy or sell either. Wait until the good Captain tells you to move. In other words WAIT for the trend to change before making a change to your investments. This isn't catsup.

    At the same time, if something you've invested in has simply kicked *ss and you're starting to get antsy - for heaven's sake sell enough so you can sleep.



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