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Stock Picks Bob's Advice
Wednesday, 23 November 2005
"New Sale Points for Stocks to be Established"
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website, as I am an amateur investor.

Watching my positions as they have been hitting my "sale points" I realized that the size of these holdings are shrinking :). In other words, I am selling too aggressively at the wrong trigger points.

What I would like to do with my portfolio is to basically sell my winnings, allowing my positions to slowly grow and not shrink over time!

I am sure that there are good mathematical models to allow me to do this, but using my manual approach suits me well. Let us assume that after each sale of a partial position, we would like to have the value of the remaining shares be 10% higher than either the original value or the value after the prior partial sale. Are you following? In addition, let's assume that I continue selling 1/4 positions. What needs to be adjusted are the percentage "trigger points" that call for the sale of the quarter of the holding.

For example, let's look at a hypothetical investment of 1,000 shares of stock with initial price of $10.00. The question thus is at what price the stock should reach before we could sell 1/4 of the position and still have a 10% greater value in the remaining shares. That is, we will sell 250 shares (1/4 of the position), so at what price would the remaining shares be worth $11,000, which would be a 10% increase in value.

With a little math we can see that we would have (750)(x) = $11,000, or $11,000/750 = $14.67. Thus, we should wait until a 47% increase in the stock price prior to selling 1/4 of a position for the first sale.

How about the second sale? This time, if we want to continue the 10% increase in position size, this would require a $11,000 x 1.1 = $12,100. Selling 1/4 of 750 shares would mean 750 x .75 = 562. Thus, (562)(x) = $12,100, or x= $21.53, or a 115.3% appreciation prior to a second sale.

As you can see, these appreciation levels are much higher than my currently applied sales points!

And the next sales point? Again, going for a 10% increase in the position size, we would need to wait for $12,100 x 1.1 = $13,310. And selling 1/4 of shares would mean that we would have 562 x .75 = 421 shares. The stock price would need to reach (421)(x) = $13,310 or $13,310/421 = $31.62 or a 216% increase for the third sale.

I think this makes more sense, and I can calculate the other sale points as I go along. I shall still sit with the 8% loss, and retracing 50% of the highest gain, but I am going to try to back off the number of sales which I believe are being made prematurely, resulting in shrinkage of positions.

Thanks again for stopping by! If you have any questions or comments, please feel free to email me at bobsadviceforstocks@lycos.com or just leave them right on the blog!

Bob


Posted by bobsadviceforstocks at 2:57 PM CST | Post Comment | Permalink
Updated: Wednesday, 23 November 2005 3:17 PM CST

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