(03-05-2013, 11:22 AM)funman168 Wrote: Hi all,
which selling method you guys adopt of you find a counter you hold is overvalue:
1) Sell on the way up
2) Sell on the way down
3) Sell all at once regardless of price movement.
Thanks
This is a very personal decision. For example, let's take a Toyota Corolla Altis. Would you buy it at $80k, $100k, or $120k?
Some people may say I don't even need a car cuz I take bus. Some people will say $120k is reasonable because that is market rate. Some may say $120k is market rate, but my income is only $3k a month, so while I need a car, I can't afford that much for a depreciating asset. And of course, others will say, I'd rather buy a Merc for $250k.
So for your question, it depends on each individual investment profile.
- Some with only 1 stock in their portfolio may decide to take profit (bird in the hand is better than 2 in the bush)
- Some may be "greedy" and hold on
- Some may sell half to hedge
- Some may sell all and move funds to more undervalued stocks
- Got many other strategies...
Since this is a value forum, I think most will agree that once overvalued, it is time to sell, so the question is how much to sell and at what level of overvalued-ness?
- One school of thought is "if the business is good, my holding period is forever" - after all, if you sell, you may not be certain when you can buy back into this wonderful business. It may come down only 5 years later, within which you may have missed the great dividends, or its value may grow into the previously overvalued price. So I hold on and NEVER sell as long as the business is intact
- Another school of thought is "sell when it reaches x multiple of fair value" (Like felix, sometimes I do this)
- Another tactic I use (tactic not strategy) is if I understand the price pattern and volatility of the counter, I even trade on spikes and plunges. I look at the moving average (MA), and if there is a 20-30% rise above the MA for no fundamental reason, I sell. Usually it drops back to the MA and I buy back in. Conversely, if a sound stock plunges for no fundamental reason, I will accumulate more.
I use a lot of discretion, and no fixed rules.