Message Font: Serif | Sans-Serif
No. of Recommendations: 0
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.

no position in RIG ;-)
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.