Opinions please on selling.I've always considered my self a buy and hold investor and feel I've taken my time to choose wisely. I'm now finding my self with 200%+ gains on several issues including SBUX MON and SONC.When I bought these I invisioned an almost lifetime holding, perhaps selling off bits during retirement (12-15 yrs from now)also seem to remember the envy I felt when seeing older folks show me their gains of KO or MCD 1000%+ and wanting to be like that. Maybe it's just a number but these and others approaching the 100% mark have made me wonder about locking in some gains. I don't really want to sell anything, but also know emotional "attachment" is certainly no reason to hold.I hope to hear from pros and cons about selling at this point. Perhaps I'm just at a point too to be questioning it and really DO want to be like those older folks...PS Don't ask me about my losers! Yes, I have somne of those too110
First off, are they held in a taxable account or an IRA?Secondly, do you have any reason to sell these, other than the fact that they have gone up? Unless you see some sort of change in their business environment or they are overpriced, is there a reason to sell?Thirdly, do you have a place to put the money once you sell? In other words, are there other stocks you've been eyeing?Just because a stock has appreciated over the years is not necessarily a reason to sell it.JLPhttp://AllThingsFinancial.blogspot.com
Hi JLP,1)Taxable;2)No other reason;3) No, not without doing all my research all over again. Not that I adverse to the work mind you, just don't want to do it all over again.This is sort of what I "needed" to hear...Onward and UPWARD!!!110
110,Well, if it were me, I would have to have a reason to sell other than just because they have risen in price. If you don't think they are overvalued or anything like that, then I would stick with them. That's my opinion.Just make sure you are plenty diversified.JLPhttp://AllThingsFinancial.blogspot.com
110,This is the same kind of advice I got when I asked about an IPO I had that had gone from $15 to over $200 a share. Now I know that you want to set a loss-limit order to sell if the stock drops, say, 10%. You need to continually move the limit to reflect the price of the stock as it rises. The stock market may be efficient, but it's not necessarily rational. Protect yourself.Disclosure: I am now an index investor.db
db,I would be willing to bet that the IPO was way way overvalued at $200 per share.JLP
I have a rule. "When you get a double, sell half." Then you buy a different stock. The way gas prices are going, perhaps an energy stock? One that pays a dividend? Many come to mind. If you have 200% gains, and sell half, you will have a bunch of taxes to pay. Does your current withholding cover 2004 taxes? If not, you may need to file quarterly estimated taxes. But you will get back all the money you put into those stocks in the first place, will still have more than you started with in those stocks that have performed well for you, and will have some new ones also, thus diversifying your portfolio. Best wishes, Chris
JLP,I think "overvalued" is a more or less meaningless term, and a term over used. Something is valued at whatever another is willing to pay for it. Ophra Winfrey is reported to have paid $52 million for a property in Montecito. Was that overvalued? She apparently didn't think so. The stock in question had a negative net income, so by some definitions would have been overvalued even if given away. But had I known what i know now, I would have kept a stop-loss order 10% below the rapidly rising value, and sold my 1200 shares at $180. That's the point, not whether someone believed it was overvalued at whatever price I sold it for.dbMontecito, CA
Chris,"Sell half after a double" seems to violate "ride a winner, sell a loser" advise, and suggests you are likely to leave good growth on the table, unless you see it as an asset allocation issue. A similar strategy I've come accross is to take out your original investment and let the profit ride, thereby convincing yourself that you're investing with "free" money. Setting a stop-loss order (ride a winner, sell a loser) seems more rational, unless a stock holding grows to be an inapproriate proportion of your portfolio.db
"When you get a double, sell half" is an asset allocation issue. Since one then has one's money back, you then are not tempted to sell the rest. The rule has served me well over the past decades in all kinds of markets. To some extent it is a market timing ploy. In practice I set the stop and refrain from bailing out of a stock that is still on a tear. Have I sold my energy stocks yet, which have doubled? Nope. But I'm watching carefully and the stops are in place. Of course, having a double is not the only reason one sells a stock! Best wishes, Chris
Riding the winners can be very dangerous. A stock will reverse direction instantly, whenever more people want to sell than want to buy. There is no way to predict when that will happen, and no way to recognize when it happens except after the fact when it is too late.However, you can protect yourself from the reversal by placing stop loss orders at a chosen percentage (7% is common) below the price. The disadvantage of this is that you may get 'stopped out' on normal volatility. You can also buy a protective PUT. The advantage of the PUT is that you can wait for the price to come back up after a period of high volatility. Then, if it doesn't come back, you exercise the PUT right before it expires.I don't believe in momentum, so when I think a stock is too high for market conditions, I start asking myself questions. If I had new money, would I invest it in this stock? If I sold, would I have a better place for the money?Personally, I like to sell when I start feeing uncomfortable, lock in the gains, and reinvest in a better opportunity and never look back. That's what I did with my REITs last year, and I reinvested in DVY. I sleep a lot better at night now.Russ
Yeah, Russ, but what the hell does "too high for market conditions" mean? It seems another way of saying overvalued, whatever that means. For an IPO in a technology area, buyers are betting on an imagined future. And "would I have a better place for the money" is another one of the meaningless unknowns. A CD is a safer, surer place to accumulate wealth, albeit with much less potential than a sucessful IPO. It's a gamble.My name is Don Bell. I bought two IPOs that resulted from spinouts of technolgy from my research center. I lost money on both. I have been an index invester since 1996.dbWith apologies to any member of AA who might be offended by what could be viewed as a flippant allusion.
Author: iamdb | Date: 2/28/05 1:00 PM | Number: 5229 what ... does "too high for market conditions" mean? It seems another way of saying overvalued, whatever that means.I agree that this is not a clear thing. It means different things to different people. To me, like I said farther in my post, it is when I start feeling uncomfortable, and the stress of owning the security rises. That's when I sell and take my profits (and never look back). You'd be amazed at how much better you feel after doing this.For an IPO in a technology area, buyers are betting on an imagined future. And "would I have a better place for the money" is another one of the meaningless unknowns. A CD is a safer, surer place to accumulate wealth, albeit with much less potential than a sucessful IPO. It's a gamble.My name is Don Bell. I bought two IPOs that resulted from spinouts of technolgy from my research center. I lost money on both. I have been an index invester since 1996.IPO's are as risky as it gets in stock investing!! I put them in the same category as lottery tickets. I don't ever buy either one. I agree; IPOs will you into a believer in index funds.I have about 90% of my retirement portfolio in index funds. It's the other 10% where I invest in individual stocks. It's in this part of my portfolio where I sometimes get a stock with a lot of profits that I like to cash in on.Russ
Russ, I would never have invested in an IPO had I not had an involvement in spinning out the two technologies that resulted in the startups. I'm entering my 13th year of retirement, so my spinoff days are well behind me. Now I pay a lot more attention to financial planning than I did during my career, when it was a given that earned (in the financial sense) income exceeded needs. Now that it's potential income to meet our needs during the next 40 years, I pay much closer attention. Even though I expect to inherit something over a million within the next 10 to 15 years (my mother will be 92 in April), I find myself unable to incorporate this into my financial planning, so I plan using our money only.I value your posts.db
Author: iamdb | Date: 2/28/05 4:25 PM | Number: 5231 I'm entering my 13th year of retirement, so my spinoff days are well behind me. Now I pay a lot more attention to financial planning than I did during my career, when it was a given that earned (in the financial sense) income exceeded needs. Now that it's potential income to meet our needs during the next 40 years, I pay much closer attention. Even though I expect to inherit something over a million within the next 10 to 15 years (my mother will be 92 in April), I find myself unable to incorporate this into my financial planning, so I plan using our money only.I'm in a similar boat, though not quite as far up the river. I retired in 2001, and my mother is 86. I won't get as much as you will by a long shot (I may not get anything if medical costs eat it all up), but I also have not ever incorporated it into my planning either.I value your posts.I appreciate that!!Russ
Even though I expect to inherit something over a million within the next 10 to 15 years (my mother will be 92 in April), I find myself unable to incorporate this into my financial planning, so I plan using our money only.Iamdb,You are right, it is probably wise NOT to include your inheritance into your planning. Instead, think of it as a gift and enjoy it or pass it on.Let me ask you, is this money in an IRA?JLPhttp://AllThingsFinancial.blogspot.com
JLP writes:"You are right, it is probably wise NOT to include your inheritance into your planning. Instead, think of it as a gift and enjoy it or pass it on.Let me ask you, is this money in an IRA?"I inherited my dad's IRA; my mother was the surviving spouse of their trust -- his tax exemption was wasted, and that may come back to bite. But to answer your question, the money has been taxed. Although we may take a small monthly supplement from the estate, my plan is to continue to grow it, and establish a small charitable foundation that would fund four-year scholarships and open space purchases.db
my mother is 86. I won't get as much as you will by a long shot (I may not get anything if medical costs eat it all up), but I also have not ever incorporated it into my planning either.A good friend of mine has 2 sisters (one is mentally disabled). The other sister is just poor, with almost no assets except for her 2 children ;-) My friend had over $2 million for herself to retire, the disabled sister has money in a trust (from her mother's demise, over which my friend is the trustee). Their elderly father had about $300K left in assets when he required assisted living care, and later, nursing home care. My friend started running around to lawyers trying to find ways to 'protect' his assets and let Medicaid pick up the health cost. At one of these meetings, her non-disabled sister accused her of 'trying to steal' her father's money. She was extremely upset and asked my advice. My response was that since my friend didn't need her father's money, and the one sister who does is behaving badly anyway, why not just leave things be. After all, her father is the one who earned this money, and shouldn't he have the right to use it to make himself as comfortable as possible in his few remaining years? (No one can convince me that Medicaid patients are treated as well as 'paying' patients in homes) At his passing, about $20K remained of the original $300K--a kind of poetic justice, IMHO.2old
I resent people who try to hide assets in order to qualify for Medicaid. If my 91 year old mother needs to use the estate funds for her health care, so be it. I hope she doesn't, because that would mean a very protracted illness. If she follows her brothers and sisters, she is likely to live well to a 100 or more, then die quickly and quietly.db
db,Well, it is flawed thinking to try to get away with it. Sure, some people may be able to get away with it but if enough people do it, we all end up paying more through higher taxes.That's why I like long-term care insurance. If a person has LTC, then they don't have to worry about greedy relatives making choices with their money.JLPhttp://AllThingsFinancial.blogspot.com
Sure, some people may be able to get away with it but if enough people do it, we all end up paying more through higher taxes.Like db, I also dislike the idea of people doing this, and particularly, getting away with it. Unfortunately, many folks I know are getting away with it (and I don't think they're different from the 'norm'), which is probably partly why the medicare/medicaid program is in such bad straits.Irene
Post #5227Riding the winners can be very dangerous. A stock will reverse direction instantly, whenever more people want to sell than want to buy. There is no way to predict when that will happen, and no way to recognize when it happens except after the fact when it is too late.Riding the winners is dangerous only to those who fail to protect their profits on the way up. It's interesting how many people have experienced gains in a stock only to allow them to evaporate after the stock has turned and gone in the other direction. Enron and Lucent are good examples. While it's true there is no way to predict when this will happen, you most certainly can recognize this event by using charts to monitor the price and volume action of the stock you're holding. If your particular stock starts to experience abnormal price and volume action, to the up side over a short period of time, this is usually and indication the party is about to come to an end and it may be time to get off while others pile on. Unless you're extremely lucky, there's no possible way to exit at the top. Something will always be left on the table. The use of trailing stops will help to protect your gains if you choose to ride the stock until it reverses and starts its decent.However, you can protect yourself from the reversal by placing stop loss orders at a chosen percentage (7% is common) below the price. The disadvantage of this is that you may get 'stopped out' on normal volatility.A stop loss order of 7% is usually placed after your initial purchase to protect your principal if you're wrong on the stock and the trade suddenly goes against you. Using a 7% stop loss after 200%+ gains appears to tight at this level and will probably end the ride prematurely. A trailing stop set at 15 to 25% will allow some room for the stock to go through its normal ups and downs without stopping you out too soon. If you do get stopped out and the stock continues its run, you can always buy back in.I don't believe in momentum, so when I think a stock is too high for market conditions, I start asking myself questions. If I had new money, would I invest it in this stock? If I sold, would I have a better place for the money?Momentum is everything. It's what drives stock prices higher and higher and allows for gains of 100%, 200%, 300%+. Former owners of TASR, GOOG, CME, TZOO, NGPS, DCAI, and HRT, to name a few, would have something to say about how momentum affected their price movements.Nobody should have to consider selling because their stock has returned exceptional gains. What the owners of these stocks, or any stock for that matter, should learn is how to protect their gains and limit their losses.Let your winners run, cut your losses short and over the long run your Social Security checks will be pocket change.Regards,Rich
Suppose I have a stop loss order @20% and the stock splits?If I'm not paying attention, am I out? Not that this would happen to ME, There's plenty of advance notice, but somebody might not be paying attention.BTW I like the 20% stop loss order on stuff over 200%, I think that allows for some wiggle room, but supposse is goes down 19% and stays awhile, Do I then re-adjust my Stop loss for 20 under that? I don't think so.110
Author: 110intheshade | Date: 3/13/05 1:32 PM | Number: 5244 Suppose I have a stop loss order @20% and the stock splits?If I'm not paying attention, am I out?No, this won't hurt you. If the stock splits, the stop order size is automatically doubled.Russ
Author: eugene4059 | Date: 3/13/05 11:03 AM | Number: 5243 Momentum is everything. It's what drives stock prices higher and higher and allows for gains of 100%, 200%, 300%+. Former owners of TASR, GOOG, CME, TZOO, NGPS, DCAI, and HRT, to name a few, would have something to say about how momentum affected their price movements.The effect of momentum has been studied carefully for years by numerous respected economists. I highly recommend that you read Burton Malkiel's 'A Random Walk Down Wall Street'. Here is some of what he writes:"Chartists believe momentum exists in the market. Supposedly, stocks that have been rising will continue to do so, and those that begin falling will go on sinking. Investors should, therefore, buy stocks that start rising and continue to hold their strong stocks. Should the stock begin to fall, or 'act poorly', investors are advised to sell."and continuing:"These technical rules have been tested exhaustively by using stock data on both major exchanges going back as far as the beginning of the 20th century. The results reveal that past movements in stock prices cannot be used reliably to foretell future movements. The stock market has little, if any, memory. The central proposition of charting is false."and his conclusion:"It turns out that the correlation of past price movements with present and future price movements is slightly positive but very close to zero". "Although there is some short term momentum in the stock market, ... any investor who pays transaction costs cannot benefit from it."Every reputable economist, including Fama & French, William Bernstein, Jeremy Siegel, and Robert Shiller, who has ever really studied this has come to this same basic conclusion. There is not enough momentum in the market to base any strategy upon.Russ
Hi 110 - I have two brokers (working towards one as I get stopped out).HarrisDirect adjusts the stop for splits and dividends. If you've never used stop losses before, just remember they expire after a certain period of time. (Both my brokers use 90 days.) I watched one of my stocks drop, secure that my stop loss would kick-in. Boy was I surprised to learn it expired the week before. Ignorance is such an expensive way to learn!I'm new to value investing, but not new to trading. (I have been swing trading for years.) I would exit 95% of all trades with a stop. Stop not only protect you when the stock goes down, but I've had a few stocks that surprised me to the upside. I had set a stop loss and the stocks just reversed and kept going up. The only time I sell "at market" is if I really want the money for a better investment.The other downside is a stop-loss does execute! One hopes the stock slides through your stop point, but sometimes you get a crash like Elan where it drops 60% (or something like that) in one day. Or the company releases bad news after the market closes. Well, guess where you stock opens the next day? Its called a "gap down" and you sell at that opening low. (been there done that). If I had Elan now I would probably let what is left of my investment ride. For those with a stop loss they are out with one big, big loss.Someone else recommended you set your stop loss at 7% of your entry point. I think that's sound advice (I use 10%) but I'm not so sure the value investors on-line here will concur. The first rule of swing trading is never loose principle and its in my bones. I think the same writer advised giving your winners room to move. I like that advice too. I would just add that you need to consider the time value of money. If you've held a stock for 10 years and its up only 200% I wouldn't give it so much lattitude. If you've only held it month and its up 200% I would be more forgiving. I bought ADM as a swing trader in July 04. With divedends its up around 45% for me. I bought hoping to make 15-20% in a few months. I move my stop from my 10% loss protection point to a stop loss at +15% when I hit the 20% profit mark. I expected it to sell, but it never executed. My stop is now at +30% from my buy point. I'm not looking at a drop from its high, but the gain from my buy in point. Its been 8 months and I think 30% is great. Right now I think there are some fresher horses on which to place my money...but I'm content to hold it if it wants to move up more!Gotta run...Enjoy!George
So, George, in a case like Elan, the only safe strategy seems to be to take half the money out if the stock doubles, so your principal is preserved. Is that true?My Lotus Elan stranded me so many times had GPS, or even a cell phone, been available for use in a car in the mid 60's, it would have made life much easier.db
Hi db,I don't know of any safe strategy against a crash (1). You never know when its going to happen. If you knew, you would sell 100%! It just comes with the territory. If you worry about said things you probably worry about lightening strikes, flying on planes and meteor strikes. I don't subscribe to the sell half when it doubles theory. I've used it, but I don't use it as rule. As I've said elsewhere I am a swing trader in recovery. Generally my time horizon for an investment was weeks to months. Occassionally I would get a zinger (Corning, Williams Co, etc.) that were doing so well I just stayed in the saddle well past my target sell point. (Its bad to deviate from your plan. You usually loose money.) Selling half when your money doubles just depends on how comfortable you are with risk. If you are making money, my rule is stay invested until you find a better investment than the one you are holding. A few weeks back I sold 800 shares (half) of Aquila (ILA) in my daughter's account. We didn't have a double and I didn't sour on this long term-high risk opportunity. I just wanted to diversify her holdings. My point being, I don't think there's a real litmus test for when to sell.George(1) - Well I do know one strategy against a crash. It's called an out of the money PUT...but that's a whole different topic and since I've never managed to make money on Puts, I'm going to keep my mouth shut.
I see a lot of stop loss in this post. I am curious, when you put a stop loss, is it for the complete amount. For the case where you have purchased in several batches, should the stop loss be for each batch or for the average price for the complete holding using the average cost?
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