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Author: rationalwalk Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 223855  
Subject: Re: Still cheap at 4 year high Date: 10/4/2012 7:00 PM
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Regret avoidance is one of the psychological issues associated with investing that I find most difficult to address successfully. I have next to no issues with a stock that I buy getting cheaper even immediately after a purchase since I'm usually happy to buy more at a lower price (assuming the investment thesis remains intact). Theoretically, if a stock reaches a price target and one sells, subsequent movements in that stock should have no more of an influence on one's state of mind than the movements of any other security.

But it doesn't quite work that way. Nothing is more annoying than selling something at $X, particularly after waiting a couple of years for it to work out, only to see the price pop to $X + 20% shortly after the sale.

I think the solution is to have both a phased buying and phased selling plan in place ahead of time and to stick to it. For example, selling a position in 20% chunks rather than all at once starting at a modest level below IV and ending at a modest level above IV can likely yield the same net proceeds over a number of investments over many years versus selling everything exactly at IV. But it is psychologically less problematic because when one sells that initial 20% stake and the stock goes up, that's fine because 80% is still in the portfolio.

Anyway, selling any Berkshire is still quite a ways off at this point but I think having that plan in place ahead of time is very important. Especially in the case of Berkshire due to its unique history and leadership.
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