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Earlier today, as I wrote, I sold my shares in ICO Corporation (ICOC). I sell shares for one of three reasons. Either there is some fundamental announcement whether bad financial results or some undefined announcement including an acquisition, the stock declines to a specified sale point, or the stock appreciates to a targeted level at which time I sell a portion of my holdings.
In this case, after an initial purchase, ICOC hit my 8% sale point and I sold my shares without regard to any fundamental change in the 'story' behind this company. Not all of my readers appreciated this move.
Alan T. wrote to me this afternoon:
This was a terrific question! Why wouldn't it be a great idea to buy some more shares on a pullback rather than selling my shares? Especially in a stock as volatile as this company, which 'provides numerous pullback opportunities.'
This isn't necessarily a bad approach. But it isn't my approach. Before I buy any stock, I have a plan about what my reaction will be when the stock either appreciates or declines in price. I like every stock that I own. But I am prepared to sell any or all of my holdings if those stocks decline to 'sale points'. It doesn't matter to me whether I have held a stock for one week or one year, these sale points are what matter to me.
In the past I have been ready to make exceptions to my trading rules. And my portfolio suffered subsequently. The purpose of this blog has been to involve all of my readers into increasing my own trading discipline and not to make exceptions or variations in my approach. Those who are value oriented might well find a stock that has declined to be of even greater attractiveness than a stock that has appreciated. The opposite is my assessment of those situations.
There will be times when these decisions won't be the best approach to every single trading situation. It may well be the time to be buying ICOC and not selling shares. I don't know. I don't have any insider information nor do I seek that information. And it doesn't matter if ICOC climbs back tomorrow, as I do suspect it shall do. What matters is my own trading discipline in the long-term.
But I cannot apologize for maintaining my own strategy that requires me to sell stocks with small losses. For my trading philosophy requires me to sell stocks quickly at small losses and completely, and partially and slowly at targeted gains. Let's find out how this strategy works. We will only know if we implement and follow our own rules for trading and investing.