OK, here's the deal. I've been investing for a little over a year and I've not really had to think about selling anything yet, so I'm inexperienced at making the decision. I've got my first double (woohoo!), COCO, which has doubled in a few months, and i'm wondering when it makes sense to sell (if at all). Taxes are not a consideration because its held in an IRA.COCO is still trading at a discount to its larger peers (APOL, DV). All three firms have similar ROA, ROE, debt to equity and forecasted earnings growth. While COCO has a PE in the 24 or 25 range, APOL and DV are around 37 to 40. COCO has a ttm price to EBITDA of 12.8, while APOL is at 19.2 and DV is at 20.6. The wrinkle here is that PEG suggests that COCO is about farly valued now at $33/share, but the multiples that DV and APOL are getting suggest that COCO could be valued as high as $42 or $44 per share. So what should my target be? PEG-based? Peer valuation-based? Anything I'm missing?TIA,Andrew
Sell when you hit your target at have some other opportunities that may allow you a greater return.
Sell when you hit your target at have some other opportunities that may allow you a greater return. ***************Yeah, I agree, but what should my target be? Fundamental valuation-based, or peer valuation-based?(Boy, that was a quick response!)
My tareget changes. I mostly look at a % of return. For instance, I just sold some SBUX today. I held for a year, saw a 57% return, and figured it was time to get out. That was my choice.As far as using those other valuations you are speaking of, maybe someone else can help you on that.
Ringfinger:I appreciate the back-and-forth. How did you make the decision that 57% was enough on SBUX? Did you see something else that was to juicy to pass up, or was the decision based on the thought that SBUX has probably finished its run for the moment and its time to take profits?
I hope you don't mind my jumping in with my two bits. Nobody really has a good answer for when to sell. I know alot of people have a target pecentage but you can really miss out on some good gains that way. Why sell a stock when its working for you? Also if you reach your target in less than a year you have more taxes to pay and therefore less profit. The secret is and for which I do not have an answer is after you have made a good gain when do you get out on the down side? Is there a theroy or two on that? Since you are a new investor you might consider subscribing to Investors Buiness Daily there is alot of really good information in it (You can get it for free for two weeks and try it ot) Two sell rules IBD is adamant about: get out if you initial investment is 7-8 percent down and never lose money on something you have had a gain on, get out before it dips below your purchase price ( THis is harder to do than you might think)
Well, I figured Starbucks has had it's run for now and will most likely be sideways if not down, but I am not sure.
I have a rule for you: When you get a double, sell half. Now, if the stock is still running up, more than $1 a day every day, let it go until the chart looks like the stock has run out of steam. But you should know that it is time to sell half, get back your original investment, and go buy another stock. Doing this repeatedly produces diversification. It is helpful to have rules by which one makes decisions so you don't have to fret and worry with the market doing its thing. So McNeil has his 8% rule (a good one) but that is for taking losses. You are in a much happier position. Hopefully this helps. Best wishes, Chris
Thats a good rule.
Andrew,On a totally different tangent, I heard the other day on talk radio that a local financial planner has a rule on selling stock. His rule is whenever he feels like selling a stock, he lies down quietly until the feeling goes away.-Chester :)
So, when does he take profits? Or is he the type that has a collection of Hummels that only collects dust because they are "worth so much" Bottom line, you have to sell to make money. Thats the rule. No sales, no cash flow.
I guess he's in no need of an immediate cash flow. Perhaps he's content to watch his paper fortune amass. But you're right, of course. He'll need to sell eventually when he needs the cash. I think his point was that from a long term perspective, if you own good companies, you need to resist the temptation to take short term profits.-Chester :)
set a target price, then when it gets there, sell.
I have losts of time to 'amass my paper profits'. Maybe some don't. Isn't the goal to outperform the annual returns of other investment vehicles? I wonder how well you do trying to 'lock in profits' by selling at target prices? It seems logical, but is it being done successfully? If so, maybe I'd better take another look at that strategy! My LTBH approach, while in it's infancy, (a little over a year) has been a roller coaster ride, indeed. But overall, I'm getting a pretty good return.I'm looking at about 15 years out. k
the point of selling at a target price is really a piece of mind thing. when you purchase a stock, you may have some expectation of what it will rise to over x amount of time. when and if the stock meets your expectation may or may not be a good time to sell. You really need to decide based on your financial goals and on how well the stock is doing. if you think the stock will continue to go up beyond your initial expectation, then hold.I guess the end result of setting a target price is that you can walk away with some level of happiness- that you bought in and sold, and walked away with what you expected.