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Investment Analysis Clubs / The BMW Method


Subject:  A learning curve Date:  9/9/2012  10:37 PM
Author:  ThyPeace Number:  40703 of 41798

I've been working, slowly, on a new aspect of investing -- stop loss and trailing stops. With a very limited number of exceptions, I have never sold a stock. (Warren Buffett took my Wrigley shares. I don't consider that a sale. I did sell Manitowoc Company shares -- and then bought them back when the price had dropped to something more reasonable.) I've owned some stocks for more than 35 years now, the large majority of my life.

So I am it approaching with caution.

I've been sitting and staring at my portfolio in the evenings for the last few weeks. How do I know when to sell this stock? I've owned it since I was 9. Or 12. Or 21. In some cases, more than 35 years. It's been a friend for a long time. It has a nice gain and a nice dividend that pays more than any savings account, and has for a really long time. Why would I want to get rid of it?

According to the idea of a stop loss, or a trailing stop as I have actually been working, you don't let a stock drop too far before you sell it. This makes sense to me. I capitulated in 2009 at just about the worst time. I didn't do that with my old friends, the stocks I've owned forever. I did it with the mutual funds that were in my 401k. I didn't know them and their habits. Their behavior was bizarre and scary.

But when the stocks I know well dropped so far, I just looked at them again. Nothing had changed in the basics of what the companies do, who they serve, what products they produce, or the quality and integrity of the managers. I sat tight. Wished I had the cash to buy more of those stocks, and did buy more where I could. Each of them has regained its value, and then some.

So it's very difficult, staring at these stocks and trying to decide when to part ways with them based on just a numeric (or a percent) drop,
rather than on the performance of the underlying company. It's not "could I use this money more productively?" even. It's "how do I protect mys