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.
I have been trying to accomplish many things simultaneously on this blog.
Above all, it is a way for me to examine my own ideas about what makes a good investment. It is also a way for me to look back at my own ideas and find out how successful they have been. Besides 'picking' stocks, I am trying very hard to determine the best way for me to manage my own portfolio. When should I sell a stock? How much of that position? And what to do with a stock that does well and what to do with a stock that disappoints and declines in price.
Along that line, a regular reader, and I should hope friend has written another nice letter.
Let me share with you his inquiry as well as my response. If you or anyone else have any comments or questions, please feel free to email me at firstname.lastname@example.org. If you could, I would appreciate if you could give me a first name and a general location. It makes inquiries and responses a bit more personal and that I think is what makes this blog interesting.
William S. writes:
" Hi Bob,
Hope all is well. I was wondering how you handle a stock that goes up a little bit after you buy it, say 4%-5%, and then heads into a loss? If I remember correctly, you will allow a profit to retrace 50% before selling it if it heads down. Does a stock you hold have to go up a certain amount to apply that rule, or does it hold for small gains like the one I suggested as well. Thanks, and have a good week!
Thanks so much for writing Bill! Since I haven't gone over this too much lately, let me share with you my own approach to selling stocks on what I like to call "bad news". I will discuss sales on "good news" elsewhere, but generally those are the sales at targeted appreciation levels: 30, 60, 90, 120, 180, 240, 300, 360, 450% gains, etc. At those points, I sell 1/6th of my remaining holding in that particular stock and use that as a "signal" to add a new position.
But let's get back to selling on bad news.
There are only a few different cases I need to discuss.
First of all, after a stock has been first purchased but has not ever reached a sale at a gain, I will allow the stock to decline to an 8% point before selling...unless there is news that I believe is fundamentally bad for the company and then of course I reserve the right to sell shares at any point.
Thus, if a stock I first purchased either ranges between a (7)% loss, and a 29% gain, I shall never have hit that 30% target and I will allow that holding to decline to an (8)% loss before selling all of my shares.
Next case, if I have sold the stock once at the approximately 30% appreciation point.
In that case, much along William O'Neil's strategy of not allowing a stock that you have had a gain ever get into a loss position....I like to sell all of my remaining shares if the stock price retraces to a break-even point. Thus, the stock could have had a 'partial sale' at a 30% appreciation point, even appreciated up to a 59% appreciation point, but I will allow it to go to break-even if I have only had one partial sale.
All of the other cases are those holdings in which I have had more than one partial sale at appreciation targets. In those cases, I plan on selling all of my remaining shares if the stock drops to 50% of the highest partial sale level.
For example, if I have sold a 1/6th of remaining shares three times: at the 30, 60, and 90% appreciation levels, then I will sell all remaining shares if the stock declines back to the 45% appreciation point--1/2 of the highest (90%) appreciation target. This would include shares that only climbed to a 91% appreciation level all of the way up to a 119% appreciation point, because they never hit the fourth or 120% appreciation point.
This strategy appears to be working for me. This gives me a framework (if you saw my current diet regimen you would know I needed a framework!) and answers my own questions about when I need to sell in virtually all situations. It doesn't mean it is the best way to go about it. You may well develop a better approach, but this is the way that has been effective in 'advising' me on sales of stocks that I own in my portfolio!
Thanks so much for visiting and writing! Please keep me posted on how things are working out for you and any ideas or strategies you have been employing.