Rules for when to sell a stock

[RandomInvestor]

Hey guys, I am just curious to know your rules when to sell a stock? Like I have heard when it becomes overvalued or things like the stock doesn't align with your goals, or something in the company has changed etc. But the other one is if it falls by a certain amount I seen this guy say if it drops 10% he sells it, but then I hear other stuff which says buy more its cheap (this depends obviously not every price drop is going to mean its cheap. But if it is beneath the intrinsic value wouldn't it make sense to buy more?

Like I understand in investing you need to take the emotion out of it, and was watching a Martin Skhreli video (he is a stock investor) and says have rules if its 10% make it 10%. But wouldn't you want to buy more if its beneath intrinsic value? He said something like if it drops a certain amount you should think "where did I go wrong?, was my analysis wrong?" but in the short term shouldn't you just ignore prices drops 10-20% etc? Fair enough if over 10 years the stock price is doing crappy. Also one last thing just because it did drop say 20% that doesn't really prove your analysis was wrong imo, am I missing something?

 

[galumay]

I dont like hard and fast rules about selling prices, in some ways knowing when to sell is harder than knowing when to buy. Another perspective is that if you do a good enough job in selecting the companies you want to become a part owner of, then you should never sell.

I have invested in a businesse that lost 95% of the price I paid, I averaged down and held on and came out selling with a massive profit, but then again I have held SGH all the way down and never expect to see any meaningful amount of my capital returned!

So for me like everything else in investing, there are no absolute rules. On that basis I dont really have any useful ideas for you!

 

[Tightwad]

if it starts taking over my folio or reaches an amount i'm not comfortsble with i sell down a bit, of course i've been caught with a stock that keeps going up but at least i've locked in profit and i'm using it elsewhere.

other reasons are if i stop believing in the company, eg. the management loses the plot/i get sick of management and excuses or mistreating holders, loss of competitive advantage, being at the wrong end of the cycle for a cyclical stock, the outlook changes - company won't be able to generate the same numbers within a reasonable timeframe, a better opportunity comes up, etc.

 

[pixel]

On Share Prices
A piece of advice from Phil Carret’s The Art of Speculation:
If you have 1000 shares of a stock worth currently, say, $9, disregard entirely the price you paid for it. Rather ask yourself this question: “If I had $9,000 cash today and wished to buy some security, would I choose this stock in preference to every one of the thousands of other securities available to me?”
If the answer is strongly negative, sell the stock! It should not make the slightest difference whether the stock cost you $5 or $13.
Your entry price is totally irrelevant, but the average punter gives it considerable weight.

find more at: http://rettmer.com.au/TrinityHome/Trinity/Musings.htm#onshareprices

 

[galumay]

Good quote, Pixel. A nice example of inversion thinking.

 

[pixel]

Good quote, Pixel. A nice example of inversion thinking.

Thanks Galumay
The underlying conviction is this: Individual investors and traders are small minnows in a big ocean. The Market doesn't know us nor does it care at what price an individual bought. The Market doesn't give a rat's whether I'm in profit or not. It moves the prices of its own accord: trending up, down, or neither. In order to stay afloat, I make it my business to determine the trend a stock is in, then follow the trend until it's turning.

ATR Envelopes have been serving me well for that purpose. The greatest benefit in charting them lies in the fact that I can select and backtest the channel width that proved most efficient for the applicable trading period of any particular stock.
http://rettmer.com.au/TrinityHome/Helps/cTrinityDuo.htm

 

[galumay]

Pixel, whats interesting to me is that even in people of totally different conviction and world view there can be lessons learnt, I find any believe in trending and charting to be totally logically non-sensical. Despite that what you posted resonated with me and is a strong example of second level thinking, something I am always trying to apply. BTW I also totally agree with your comment that the market doesnt know or care about individuals and pricing - something that many investors and traders have a blind spot to.

 

[tech/a]

Radges quote always resonates.

It doesn't matter that your wrong
Only how long you stay wrong!

 

[pixel]

Radges quote always resonates.

It doesn't matter that your wrong
Only how long you stay wrong!

"The Market can stay wrong*) far longer than you can stay solvent."

*) "wrong" in your (not so humble) opinion

 

[tech/a]

"When your wrong and everyone else hasn't worked out your right!"'

 

[RandomInvestor]

I dont like hard and fast rules about selling prices, in some ways knowing when to sell is harder than knowing when to buy. Another perspective is that if you do a good enough job in selecting the companies you want to become a part owner of, then you should never sell.

I have invested in a businesse that lost 95% of the price I paid, I averaged down and held on and came out selling with a massive profit, but then again I have held SGH all the way down and never expect to see any meaningful amount of my capital returned!

So for me like everything else in investing, there are no absolute rules. On that basis I dont really have any useful ideas for you!

Ah ok thanks man.

 

[RandomInvestor]

find more at: http://rettmer.com.au/TrinityHome/Trinity/Musings.htm#onshareprices

Thanks pixel sounds good.

 

[galumay]

"The Market can stay wrong*) far longer than you can stay solvent."

Whilst this is one of those sayings that resonates with us, i reckon its largely nonsense. Markets dont stay wrong for very long periods of time usually and rarely would a market being wrong mean that an investor was made insolvent.

When I think about it this seems more logical to me, "The market can stay wrong, far longer than most can stay patient."

There is also some sort of inverse of it, "The market will stay right, far longer than most can stay patient."

 

[luutzu]

Whilst this is one of those sayings that resonates with us, i reckon its largely nonsense. Markets dont stay wrong for very long periods of time usually and rarely would a market being wrong mean that an investor was made insolvent.

When I think about it this seems more logical to me, "The market can stay wrong, far longer than most can stay patient."

There is also some sort of inverse of it, "The market will stay right, far longer than most can stay patient."

That's just stupid.

Those who somehow could short the Australia property market would have gone broke by now. It's been irrational for at least the past three years.

Or watch The Big Short. Dr Burry was the first to see an irrational market and short the heck out of it. The fraud and market exuberance went on for a couple of years after his bet and it almost buried him. His investors want their money out, his "mentor" want nothing to do with him and the dude have to play legal games to stretch out the timing to prevent massive soon-to-be-realised losses if they can get their capital back without going to court.

So that observation from Keynes is to warn against thinking that the market is rarely irrational and will fix itself up "soon". That is, don't bet on the market knowing what rationality is. You'll loose your shirt before the market rationally does anything.

 

[Ves]

So that observation from Keynes is to warn against thinking that the market is rarely irrational and will fix itself up "soon". That is, don't bet on the market knowing what rationality is. You'll loose your shirt before the market rationally does anything.

Bit of trivia, but I think the quote: "The market can remain irrational longer than you can remain solvent" is possibly falsely attributed to Keynes. There's actually no evidence of him saying it outside of a second hand anecdote that appeared in the 90s. Found that interesting, myself.

 

[luutzu]

Bit of trivia, but I think the quote: "The market can remain irrational longer than you can remain solvent" is possibly falsely attributed to Keynes. There's actually no evidence of him saying it outside of a second hand anecdote that appeared in the 90s. Found that interesting, myself.

Cool. didn't know that. Always thought it was his.

Went to a quotation site and apparently he first says that it's better to be approximately right than precisely wrong. Always thought that was Graham or Buffett's.

Quite a few other fine one-liners there too.

 

[Ves]

Cool. didn't know that. Always thought it was his.

Went to a quotation site and apparently he first says that it's better to be approximately right than precisely wrong. Always thought that was Graham or Buffett's.

Quite a few other fine one-liners there too.

Yeah there are heaps of one-liners attributed to Keynes. I think there's quite a few of them that have no direct source (ie. in his books or speeches) though. I guess at the end of the day as long as the quote is good it doesn't matter who says it!

 

[luutzu]

Yeah there are heaps of one-liners attributed to Keynes. I think there's quite a few of them that have no direct source (ie. in his books or speeches) though. I guess at the end of the day as long as the quote is good it doesn't matter who says it!

True.

 

[skc]

"The Market can stay wrong*) far longer than you can stay solvent."

*) "wrong" in your (not so humble) opinion

How about

"You only make profit when the market is wrong"

 

[OmegaTrader]

Hey guys, I am just curious to know your rules when to sell a stock? Like I have heard when it becomes overvalued or things like the stock doesn't align with your goals, or something in the company has changed etc. But the other one is if it falls by a certain amount I seen this guy say if it drops 10% he sells it, but then I hear other stuff which says buy more its cheap (this depends obviously not every price drop is going to mean its cheap. But if it is beneath the intrinsic value wouldn't it make sense to buy more?

Like I understand in investing you need to take the emotion out of it, and was watching a Martin Skhreli video (he is a stock investor) and says have rules if its 10% make it 10%. But wouldn't you want to buy more if its beneath intrinsic value? He said something like if it drops a certain amount you should think "where did I go wrong?, was my analysis wrong?" but in the short term shouldn't you just ignore prices drops 10-20% etc? Fair enough if over 10 years the stock price is doing crappy. Also one last thing just because it did drop say 20% that doesn't really prove your analysis was wrong imo, am I missing something?

1) if your strategy tells you to sell
Part of the development of a plan/strategy would include when to sell,buy etc. This would be different on an individual basis.

2) something is going wrong
Maybe if circumstances or underlying assumptions have changed then re assessment may be to sell out of the trade. This would counter the strategy rules but would probably be before the strategy trigger to sell has been implemented.

3) You are killing the strategy
One is not investing anymore, retirement, need the money, strategy stops working etc etc