Here are my rules for selliing stocks. First this is for my taxable account and I have 19 stocks right now although about six years ago I was up to 27. At 20 positions this would mean that each stock should be about 5% of the total portfolio. It's also pretty well diversified between industry groups and market caps.1. Pass my pain to Uncle Sam. When a stock goes down I either double down on the stock or I just sell and get out of the position and take a capital loss on the stock so that I take the maximum $3000 tax deduction. Even on strong years for stocks, I can still find losers to sell or use carry over from previous years and lower my tax burden. 2. Rebalance. I sell half of my position if that particular stock is 10% of my total portfolio. Think of it as rebalancing. Cut the big winner and redistribute it to the mediocre. This usually means that a particular stock will have to increase by >130% over a year or less. For instance if the other 19 holdings tack on 20% over a period of time, the one great stock would have to gain 153% in order to hit the 10% of the portfolio rule. This hasn't happened often as it is pretty rare to get a stock to go on a tear. My largest holding right now is only 7.75% even though it has had 134% increase since I purchased it four years ago. In order for the stock to trigger right now it would have had to gain by 210%. 3. Let someone else decide. Write a covered call. What it really does is forces you to make a decision now at to what price you would sell at. Example would be Transocean(Rig) last traded for $53.76 and I decide that I should sell. I can write a call option for Jan 2013 at a strike price of $55 for $6.85. I am basically setting my sale price at $61.85 at some time in the next year. Since I hold the stock, I collect the dividend until the option is excercised. This isn' always a tax friendly option, but in a tax protected account it maybe a viable option. If the stock stagnates or goes down and the option expires, write another one. The premium + dividend can really provide a decent yield even if the options never get excercised.C2H5SHno position in RIG ;-)
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