Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.
Checking my email, I had two messages from readers (and listeners) who asked me about buying and selling issues. Let me share with you their letters and address some of the issues they raise.
First, Bob K., a friend of mine, wrote a nice letter. He wrote:
"Hi Bob,Well, first of all thank you for writing! And I am glad that the problem that we are dealing with is dealing with a gain and not a loss! But what to do?
VTIV is getting a lot of attention. I bought some back in August and is up over 36%. Thanks for reviewing it. I wonder if it is time to add to this position. I know it is approaching your sell range but it occurs to me that had you not noticed it in August, would you notice it now? To put it another way, is there ever a time to add to a position with your strategy? Thanks and keep up the good work!
As I wrote you, and as I am sure you expected, I told you that I don't 'average-up' or buy more of stocks as they appreciate in price. I know that many CANSLIM investors, and others, do practice this technique. And in a stock that is climbing, it isn't necessarily a bad idea. In other words, if that is what you would like to do, then go ahead!
My own strategy involves the simple philosophy of selling my losing stocks quickly and completely and selling my gaining stocks slowly and partially. When one of my stocks appreciates, such as your holding in VTIV (I don't own any shares of Ventiv personally), then I would be selling 1/6th of that position, and using that sale as a signal to purchase a new position.
As I pointed out to you, I am going for base hits. Lots of them. That doesn't mean that I don't swing for the fences :). It just means that I want to have a portfolio where I am selling lots of shares at gains and selling few at losses.
Will I lose out on some of the strongest stocks that way? You bet. I will also avoid the problem of a stock climbing, failing to sell anything, and then later collapsing in price. Unfortunately that is also a more than rare occurrence.
I hope that helps you out. You knew, I am sure, what I would say. But you wanted to make me say it anyhow I guess :). Doesn't mean that if you should purchase some more of VTIV that it would be a wrong decision. Just not what I do.
I had another letter about selling stocks.
Bill S. wrote:
"Hi Bob,If you follow my blog, you will know that I don't make too many trades. Maybe just one or two a month on the average. But in any case, I try to make trades because my trading system dictates that decision for me.
I really enjoy your podcast, and I think you do a nice job of analyzing stocks in an informative and entertaining way. From what I heard you say, you've been an investor for quite a while. My question is this: How do you think about or handle taxes and commissions when trading stocks? I have been investing for about a year now, and have been doing well. I tend to hold stocks as long as things are positive from a fundamental and technical view-usually a few months. I also try to limit myself to about 6 trades (buying and selling combined) per month. The one thing I still struggle with is knowing how much I am making during the course of the year, and making decisions about getting out of a stock with a smallish gain dollar wise (say under $150) with a short term gain. I often hear to just ignore the "tax man" when buying and selling. Do you have any guidance as to how to handle these issues? Thanks!
Since I am selling stocks quickly if they hit an 8% loss, these short-term losses should cover the short-term gains. Most of my gains, stay in my account. My un-realized gains far exceed my realized, or taxable transactions.
I don't really pay much attention to the cumulative gains or losses at any particular time. Again, I am trading based on trading rules. Of course, I shall be paying taxes on my capital gains. As my dad would always tell me, I hope that I eventually have to pay LOADS of taxes on gains. I can deal with that kind of success.
One approach to consider if you are anxious to avoid taxes on gains, is to have an IRA with stocks that you are more aggressive with. In other words, as long as the trades are within the IRA account they won't be taxable events as I understand it. However, you won't be able to deduct any losses either.
My overall advice is to pay attention to your trading discipline to maximize the performance of your account. I view tax issues as extraneous and pressures that may keep you from making the right decisions about holding stocks.
My approach may not be suitable for you and you might wish to trade less frequently. There isn't anything wrong with that at all. As far as know how you are doing that year, my Fidelity account gives me a cumulative short-term and long-term gains and losses statement. If your brokerage account doesn't provide this information easily for you, you might wish to explore other brokerage services.
Good luck and let me know how things work out for you1 Again, thanks for writing, and thanks for listening to my podcast. If you or anyone else has other questions or comments, please feel free to leave them on the blog or email me at firstname.lastname@example.org.