Do You Sell at 10% Profit?

[Retired To Win]

Ten percent is my threshold to cash out and lock in a stock gain. I base that trigger on my portfolio's 8% dividend yield. Compared to that 8%, I see a 10% unrealized gain as even better than a whole year's worth of dividends -- and I can have that 10% now and guaranteed if I sell.

So I do, as I explain in my blog post "What Makes Me Sell a Stock?"

How does that compare to what you do with your stocks?

[KTP]

So last year when we all had 30% or 40% returns on our stock market indexes, you had a 10% return?

[disneysteve]

I'm not a trader. I'm an investor. I don't buy and sell. I buy and hold.

If you are dealing with individual stocks, you should be doing your homework to understand the current and future prospects for the company. The time to sell is when your research determines that there is little potential upside from the current situation. Arbitrarily setting a 10% cut off means you are probably missing out on a lot of gains from stocks that continued to do well. It also means that you are probably holding on to some stocks too long. Do you also have a trigger for when you sell on the down side?

And I agree with KTP. I own 6 stock mutual funds. The returns for the year were 15.14%, 29.74%, 32.33%, 32.40%, 35.49%, and 43.19%. Why would I have wanted to sell when they were up 10%? I would have missed out on thousands and thousands of dollars of gains.

[BuckyBadger]

I agree with the other posters. I hold index funds and have an asset allocation that lets me sleep at night. Even with my fairly-conservative-for-my-age allocation that includes 30% bonds, I saw an almost 20% gain last year.

I trust in the belief that the market, as a whole, will trend upwards over a long period of time. If I didn't believe in that, I wouldn't invest at all. And if you believe in that, then getting money into the entire market (using index funds) as soon as it's available and leaving it in the market no matter what happens in the short term is the only way to invest.

[MonkeyMama]

I have a very small speculative part of my stock portfolio and have been consistently getting 100% returns on those. I have sold most at around the 100% mark (or at least just sold off my original contribution amount and left the profit to grow).

I am a little bit of a nervous investor because we really got burned in the tech stock bust (buy and hold is not a good strategy for individual stocks, necessarily - was part of the reason we crash and burned because we hoped things would recover - those stocks never did). We have only been dipping our toes back in during the past year or so. But I am starting to feel more comfortable with it.

I have one stock that is up 125%, but am leaving it be because I think it has good long-term growth potential.

I do not expect to always get 100% returns. With stocks, you win some and you lose some. My goal is just to win more than I lose - and I know this is a viable strategy.

[feh]

I'm not a trader. I'm an investor. I don't buy and sell. I buy and hold.

+1

I only sell in order to rebalance; hopefully even that can be avoided by using contributions to maintain my AA.

[Nika]

Not unless I have something better to put it into.

Otherwise, I would just be creating a lot of unnecessary tax consequences for myself.

[disneysteve]

I have a very small speculative part of my stock portfolio and have been consistently getting 100% returns on those.

I also have a very small speculative account. I can't say I've gotten 100% returns but I've definitely done far better than 10% on most of those trades. So even when I am trading, I wouldn't sell at a 10% gain unless I had reason to feel that was as good as it was going to get.

[bjl584]

Ten percent is my threshold to cash out and lock in a stock gain. I base that trigger on my portfolio's 8% dividend yield. Compared to that 8%, I see a 10% unrealized gain as even better than a whole year's worth of dividends -- and I can have that 10% now and guaranteed if I sell.

So I do, as I explain in my blog post "What Makes Me Sell a Stock?"

How does that compare to what you do with your stocks?

You can't really use a 10% rule for every stock that you hold. It depends on what the stock is and how much more upside potential it has. Cashing out at 10% on one stock may make sense but on another it could cause you to leave a lot of money on the table.

[Retired To Win]

So last year when we all had 30% or 40% returns on our stock market indexes, you had a 10% return?

Ten percent (or more) per transaction. The particular stock lot sold might have been held for a year -- or for 2 weeks. My question still stands: when do you take a profit... or are you just letting those unrealized gains sit there and sooner or later evaporate back to where they came from?

[BuckyBadger]

And my answer still stands - I will realize those gains in 35 years when I begin selling some of my index funds to pay for my retirement.

I do not expect them to "evaporate" away.

[Nika]

Ten percent (or more) per transaction. The particular stock lot sold might have been held for a year -- or for 2 weeks. My question still stands: when do you take a profit... or are you just letting those unrealized gains sit there and sooner or later evaporate back to where they came from?

Yes, but you have to put that money in somewhere for it to continue to make money. And if you have a better place to put it, why wait for 10% gain to do it?

And if you don't have a better place to put it, what is the point of realizing the gain? You owe taxes on realized gains you know, unlike the unrealized ones. And if I have a good stock that I think will still do well, I would rather hold for a year and owe 15% capital gains on it, than the short term capital gains, which is pretty much taxed at your ordinary income tax rate. That's over 20% difference in cost.

[disneysteve]

My question still stands: when do you take a profit... or are you just letting those unrealized gains sit there and sooner or later evaporate back to where they came from?

And my answer still stands:

The time to sell is when your research determines that there is little potential upside from the current situation.

Most of the individual stocks in my portfolio (and there are only a few) have been there for years not weeks.
I bought one stock at $9. By your system, I would have sold it at $9.90. It is currently at $17.45.

Another stock I bought at $28.75. By your system, I would have sold it at $31.63. It is currently $73.39.

Another stock I bought at about $50. By your system, I would have sold it at $55. It is currently $82.79.

Following your 10% rule would have cost me thousands of dollars. I think I'll keep doing what I'm doing.

[disneysteve]

And if I have a good stock that I think will still do well, I would rather hold for a year and owe 15% capital gains on it, than the short term capital gains, which is pretty much taxed at your ordinary income tax rate. That's over 20% difference in cost.

True. You should never let taxes guide your investing but you shouldn't ignore them either. Why pay 25% taxes if you can pay 15%?

[disneysteve]

or are you just letting those unrealized gains sit there and sooner or later evaporate back to where they came from?

Why would the gains "evaporate"? As long as the company is solid, which you certainly need to keep track of, it should gain over the long term. Otherwise, you shouldn't own it.