Let's talk about when to sell an investment

[disneysteve]

This was inspired by another thread (http://www.savingadvice.com/forums/i...unds-now.html).

We often talk about which investments, funds, ETFs, stocks to buy and how to dollar-cost-average and holding long term but we rarely talk about when/how to sell investments. Is there a time when you sell an investment you've made? How do you decide when to do that? What criteria do you use? Do you base your decision on setting a particular goal? Do you base it on recent performance? Do you base it on overall market conditions or your own personal risk tolerance or some prediction of future performance? Do you handle your retirement investments any differently than your taxable accounts?

Personally, I have a core group of investments that I just buy and hold. That said, I have one mutual fund that I'm actually planning to liquidate in the near future. I have some emotional attachment to the fund (never a good thing) as it was the very first fund I invested in starting in 1992 but it just hasn't performed well in recent years and it is time to dump it. I'm just waiting until I do my taxes because I want to speak to my accountant about the best way to go about selling it off.

As for individual stocks that I own, I have bought and sold several over the years. In those cases, if I made what I felt was a good profit or I felt that the company's prospects no longer looked promising, I got out. Of course, there have also been some losers over the years and I sold when I felt that I had made the wrong choice and the company wouldn't be rebounding anytime soon.

[bjl584]

I just sold a mutual fund last week. The money that the fund controls and the number of investors have been declining over the past several years. Even with the market recovering, the fund was declining during the same period. The numbers pointed toward a negative return. I've been DCA in the fund for the past 6 years, so when I sold I nearly broke even on it. (a difference of $18 out of nearly $8000.)

As for stocks, I've sold half my position when my money doubled. I've sold all my position when it's been more than that. I've also sold when I've gotten my brains beaten in and taken a loss. It's a case by case basis. If I still believe in the company and the numbers look good, I may hold it or sell half my position at most. If the share price goes down, but the numbers still look good, then I may buy more at a lower share price. If the stock drops, and the numbers look bad, then I liquidate. Lesson learned on that one.

[amarowsky]

I have mainly sold my stocks when I plan on using them immediately. Only two real times I have done this was when I got the down payment for my house liquid and ready, and one other time for paying off ask my credit debt after a rare financially sloppy temporary move foot my job.

Other times I did sell was when I was high school just kind of experimenting with investing. In several cases I just sold after I proceed to my self that it was an acceptable profit or before the loss was to big. In either case those trades were art low value, between 700-1200 range. And few of them, I mainly look art those as rarely learning experiences. generally speaking though if sell as son as the stick fell more than 5% in a week after it had gained no lies than 30% overall from initial investment

[snafu]

I do my best to establish a criteria for both buying and selling a particular stock or MF. I have a couple of MFs that are market segment specific traders. I sell enough to recover my initial investment and sell out when I read insiders are selling. I bought Technology in last year's slump and am looking to take my money off the table soon.

I'm happy I stuck to my plan and kept DCA through the 2008 crash and subsequent slump. I was surprised when I ran the figures at the end of the year. Our tax laws are different and I'll likely say nasty things the day I pay tax owing for dividends and capital gains.

[kv968]

This was inspired by another thread (http://www.savingadvice.com/forums/i...unds-now.html).
Personally, I have a core group of investments that I just buy and hold. That said, I have one mutual fund that I'm actually planning to liquidate in the near future. I have some emotional attachment to the fund (never a good thing) as it was the very first fund I invested in starting in 1992 but it just hasn't performed well in recent years and it is time to dump it. I'm just waiting until I do my taxes because I want to speak to my accountant about the best way to go about selling it off.

Is the fund not performing well when compared to its peers (i.e. bad stock choices, management changes, too much money flowing in, etc...) or is it just not performing well overall (i.e. macro factors, sector out of favor, etc...)?

I'm quite sure you did the peer comparison but just had to ask to see your rationale for getting rid of it.

[jpg7n16]

For most of my individual stocks, I buy when I consider it undervalued, and sell when overvalued. I calculate a range on each security where I think it should be. If it's far below I buy, far above, I sell. Sometimes selling when it comes back to normal. Or if there's a different investment I feel is a better buy.

But as far as asset allocation goes (what I do with my 401k) - I only sell when it's time to rebalance. I use a combination of primarily a Target date fund, plus a few funds to raise my risk level.

[disneysteve]

Is the fund not performing well when compared to its peers (i.e. bad stock choices, management changes, too much money flowing in, etc...) or is it just not performing well overall (i.e. macro factors, sector out of favor, etc...)?

The former is the case. It has lagged for quite some time relative to its peers. I stopped DCA into this fund a long time ago but held on to see if it would turn around and it hasn't. Time to cut it loose.

Also, the older I get and the closer to retirement I get, the more I start thinking about simplifying our portfolio. We have a lot of accounts that have accumulated over the years with multiple companies. Little by little, I'd like to consolidate so that when the time comes to start drawing from our savings, it will be an easier process.

[snafu]

DS: I'm sure you can transfer holdings to consolidate providing you follow the rules not muddling retirement with non retirement; and different types of retirement segments.
Non retirement holdings are easily transferred without incurring 'Sell' or Capital gains. If you have a non performing MF, sell into this stronger market.

[Like2Plan]

Also, the older I get and the closer to retirement I get, the more I start thinking about simplifying our portfolio. We have a lot of accounts that have accumulated over the years with multiple companies. Little by little, I'd like to consolidate so that when the time comes to start drawing from our savings, it will be an easier process.

Retirement is what prompted me to sell a bunch of smaller holdings last year. I took the proceeds and put them into a single target fund. I felt so much better after I did that.

We have two stocks left and I'm planning on selling them this year while the captial gain treatment is still pretty favorable (and because we want to do some work on the house).

[kv968]

The former is the case. It has lagged for quite some time relative to its peers. I stopped DCA into this fund a long time ago but held on to see if it would turn around and it hasn't. Time to cut it loose.

Also, the older I get and the closer to retirement I get, the more I start thinking about simplifying our portfolio. We have a lot of accounts that have accumulated over the years with multiple companies. Little by little, I'd like to consolidate so that when the time comes to start drawing from our savings, it will be an easier process.

Well if its not performing well against its peers and you're looking to consolidate, then I'd say by all means sell it. Depeding on how much is in that fund, make sure that when you add that money into your existing portfolio it doesn't throw your allocation out of whack. I imagine there isn't THAT much in the fund to really affect it and I'm sure you know that regardless, but just wanted to throw that out there.

As far as consolidation, I'm actually looking to expand my ROTH although I don't want to get too crazy. I'd just like to add some individual stocks into it but I currently use T Rowe and I'm not going to use their brokerage (too expensive). I have a taxable Scottrade account and was thinking about using them but then noticed Vanguard offered 25 trades/yr for $7 and some decent no-fee ETF's so I might go that route. Also, Scottrade doesn't offer dividend reinvestment but Vanguard does. I'm just not sure if they charge you a commission to reinvest so I'll have to check that out. Looking at the website it seems as if they don't. I just don't want to have money spread out over 8-9 accounts

[Scanner]

This may sound unscientific, superstitious or whatever, but I now sell when I get the feeling I can't ride this wave any further and it's been a good ride.

I have found that your intution, while not perfect, isn't as bad as you think it is.

I have a case success and a case failure with myself to illustrate:

SLV (success) Bought SLV at $13.65. . .sold at $41.00 when I figured that I don't know how much further this "silver wave" is going to go. I did good, had my fun. . .it's time to get off and ride another wave.

JAOSX (failure): I really liked this fund back in the day Helen Young Hayes ran the fund and back before the Janus scandals. She had a knack for international company selection and this fund on average doubled the benchmark over the long term. OVER THE LONG TERM!

At one point, I think circa 2005, can't recall, the fund had like returned 80% in one year and I was like, "Gee, how much more can I ride this wave?" I came here and "buy and hold" rules the day and there were good reasons to keep holding it.

Well, you can see where this is going. . .the fund went from like $61/share down to almost $30/share (I guess this was near 2005 - looking at the 10 yr. history chart).

Now, this wasn't about timing the crash or anything . . .who knows. . .maybe I would have moved into Toxic Waste or something and lost more than that.

The point is knowing how to be comfortable with who you are and how much is enough. . .when to get off the wave, paddle out and think about grabbing the next one.

(can you tell I used to beach lifeguard? )

[Scanner]

A good parallel topic (sub-topic) actually is when to bail. . .you picked a bad wave. . .it will never crest into a good pick and just cut your losses. . .I struggle with that one. . .how much to keep paddling if it's never going to pick up steam.

I have considered that with AUMN, my latest speculation, but the fundamentals seem good, so I'm holding. . .

[kv968]

This may sound unscientific, superstitious or whatever, but I now sell when I get the feeling I can't ride this wave any further and it's been a good ride.

I have found that your intution, while not perfect, isn't as bad as you think it is.

I somewhat use this approach in sense when deciding whether or not to get out of a stock. After checking the fundamentals and technicals of something I own that's gone up nicely, I sit back and ask myself "Would I but this stock at this price?" If the answer is "I don't think so", I really go back and evaluate it again. Either selling it or possibly tighten up my stops if need be.

[kv968]

A good parallel topic (sub-topic) actually is when to bail. . .you picked a bad wave. . .it will never crest into a good pick and just cut your losses. . .I struggle with that one. . .how much to keep paddling if it's never going to pick up steam.

I have considered that with AUMN, my latest speculation, but the fundamentals seem good, so I'm holding. . .

I find it harder to find a point to bail on a mutual fund than a particular stock. Mutual funds to me are more of a macro picture of whatever you're investing in and it's harder for me to pin point where an exit should be. Whereas with a single stock I have more up to date info on it and can plan a stop where I think there's resistance or support at least. That of course isn't to say that I haven't ridden a stock down praying it'll come back and it doesn't

And Scanner, I know you love your silver and AUMN is your speculative bet, but I'm not so sure it has that good of numbers. It doesn't really have any debt so that's good but it's only made money 2 out of the last 10 years. It's been doing good lately so I hope you at least get back to even, if not make some $$$ on it. Good luck.

[EEinNJ]

If you follow Buffett's strategy, the holding period for a stock is "forever". For us amateurs, a few core holdings is a better idea. There are good reasons to sell based on the company if their management changes, or their industry becomes obsolete.

I can think of more reasons to sell that are not about the company/fund, but have to do with the investor's needs. Selling for a tax loss, or you need the money for something else, or your risk tolerance changes.