Value investing – When to Sell or Hold?

A good discussion on when to sell in another blog.

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12:30 pm
April 10, 2012

matthew

Member
posts 13
9
Yes, I did this on Aeropostale. Approximately a 32% gain I got on that bad boy.
Reasons I sold, it had trouble getting past $21-$22, and then Barclay's raised there price target to $25 so more investors bought and price went up a bit. I took this chance and sold it, and it has now went back down after today -5%. Keep in mind that I sold it early basically because my intrinsic value was around $23 and I figured i'd rather sell now than risk more just for a small additional gain.

If I had not sold it then I would have been stopped out as during the price consilidation period I put in a stop loss @ $21
10:55 am
April 10, 2012

Jae Jun

Admin
posts 1408
8
do any of you sell after a big fast run up even though it is below intrinsic value?
6:29 am
April 1, 2012

nell

Member
posts 88
7
Some reasons to sell..


1. intrinsic value < price -> no margin of safety
2. business quality goes south, management issues etc.
3. better opportunity


One good reason to buy more is when market tanks but intrinsic value of your specific company keeps growing..

Best wishes,
Nell
10:58 am
March 31, 2012

BugMan

New Member
posts 2
6
I'm fairly new to this, and I, too, see selling as the hardest part.

One thing i've thought of that makes it easier is compare your current holdings to what else is out there. If are holding onto a good company, and you figure it has the potential to go up 12% per year, but you see other companies out there that have the potential to go up 25% per year, then sell your current stock and buy the other ones. It's not that the old company isn't good — it is — it's just that there are better deals out there.
8:03 am
February 27, 2012

gstyle

Member
posts 4
5
I am fairly new to value investing so I find it good to know other have had similar thoughts to my own!
2:17 am
February 25, 2012

Jae Jun

Admin
posts 1408
4
selling is defnitely harder than buying.
One of my weak points as well. If I had a partner, I'd find someone who was better at selling than buying. It would be a great combination.

But to sell, you would have to re value a company regularly.
If there isn't much upside to intrinsic value, then I'm willing to sell at 10% below intrinsic value rather than hanging on.
Companies like GRVY, I am happy to hold even if I'm up 100%.
8:17 pm
February 22, 2012

jalleninvest
Coronado, CA

Member
posts 22
3
Post edited 8:20 pm – February 22, 2012 by jalleninvest
G.raham came up with the 50% or two years towards the end of his life, in that interview that is bandied around the internet some. I am not at all sure that he practiced that in the Graham Newman closed end fund he ran. In one case, he did not, and that was GEICO which they bought half of in 1947 or 1948. They ended up having to distribute the shares to the shareholders of the fund, and it increased 54,000 per cent or something like that. Many became multimillionaires, quite a feat back then.
Walter Schloss, who died the past weekend at age 95, talked about selling. According to him that was the hardest part of this business, trying to figure out when to sell. He didn't like paying short term income tax rates and tried to hold stocks for a number of years. He commented ruefully several times about buying at $30, selling at $50 and watching the stock go to $200, etc. He recommended a new company to Graham that had wonderful prospects. Graham turned it down, saying it wasn't their kind of deal. It was Xerox, of course, but Schloss said Graham would have sold it at a double anyway and missed out on the big increase.

If it was easy, everybody would do it!
9:23 am
February 21, 2012

Graeme
Austin, Texas

Member
posts 162
2
Yeah, this is always a fun question.

For me what I do is I break up my holdings into different categories. For example, I have holdings that I bought at a good (not great) but good price, but they pay me dividends, and if they keep acting as they have for years, they should be increasing my dividends every year. I get a bit of return on the stock price increase, but a great return over many years with the dividends reinvesting. So my sell thesis on these guys is pretty firm: as in, I wont easily do it.

But then I have holdings that I would consider a deep value: selling at a deep discount to book value, or below NCAV or in a really beat up industry. These are the shares that I have a target price for: as in, I will sell when they hit that specific price. There is not a whole lot that would change my mind and make me hold on to it longer. And sometimes that target price is 50% above my purchase, 100% or even more.

So you need to judge for yourself whether the business you bought shares in is now fairly priced at it's 50% gain or if it still has room to go.
4:33 am
February 21, 2012

gstyle

Member
posts 4
1
Hi,

I was pondering the concepts of selling a value stock or holding it for longer. I understand that Ben Graham had a strict rule of selling after a 50% increase or after two years, whichever came first.

A stock brought at value brings the 50% gain, but if this stock is in a strong company with good prospects for the future, should it still be sold? At this point, do you make a decision to strictly adhere to Ben Grahams teachings or evolve to be more like Buffett in buying a good company at discount and holding it for a long time?

If the company in question was a 'cigar butt' then selling after its gain seems more obvious than for a value stock in a good company.

Thoughts / comments
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http://www.oldschoolvalue.com/blog/forum/value-investing/value-investing-sell-or-hold/#p4033

To hold or to sell? Holding should occur only if no tests for selling are failed.

To hold or to sell?

In any discussion of holding versus selling stocks, the circumstances under which it is best to sell should be outlined first.  Holding should occur only if no tests for selling are failed.

The company-related reasons to sell are:

1. Sell if the news cannot get any better.
2. Sell if things did not go as planned.
3. Sell when the broker's advice goes from 'buy' to 'hold.'
4. Sell if company fundamentals are getting sick.
5. Sell on the rebound in the aftermath of material, unexpected or discrete bad news.
6. Sell in certain cases when expected news is delayed.

The market-action reasons to sell are:

1. Sell when the stock reaches the target.
2. Sell on an unsustainable upward price spike on big volume.
3. Sell when a portfolio shows all gains.
4. Sell if the stock is lazy money and likely to stay that way.
5. Sell using above-market limit orders, letting the market come to the investor.
6. Sell with a stop-loss order, but never remove or lower it.

Investor-related reasons to sell are:

1. Sell if the stock would not be bought again today.
2. Sell after gloating or counting the chips.
3. Sell rather than hope against hope for a 'maybe' bailout.
4. Sell and step aside on a personal losing streak.

If an investor sells stocks in a disciplined manner using the signal above, he is likely to end up with a good deal of cash before the market moves into a bear cycle.  Relatively few of his holdings will fail to hit one of  the 16 triggers noted in those lists above.  Those stocks that do survive will tend to be high-quality growth issues that have continued to perform fundamentally and have not run up to unreasonable price levels.  Some experts refer to these as core holdings or 'businessman's risk' foundation stocks.  They are stocks that have given consistent indications they can be held through good and bad in the market.

All other stocks will have become sales before a panic bottom because:

1. They worked as planned.
2. They acted too well for a brief period of time.
3. They got unreasonably priced.
4. They were wasting the time value of money by going nowhere.
5. They developed significant fundamental problems. 

Very few stocks can escape all those screens for a long period.  So if an investor is cashing in as prescribed and if his buying discipline rejects new positions when valuations get too pricey, he ends up still holding very few stocks as the market get toppy.  That, of course, protects his capital.

There are two major price-driving forces:

• fundamentals (which control the long term) and 
• psychology (which rules the short and medium term).

The fundamental and psychological factors affect stocks in both directions.  And as an overlay, understand that they can affect a stock either

• directly (because of the company behind the stock itself) or
• indirectly (because the market trend is so strong that virtually no stocks can buck it).  

However, the indirect effect is much stronger on the downside than on the upside:  fear is a more powerful driver than greed.

3 Really Bad Reasons Not To Sell

3 Really Bad Reasons Not To Sell

By Bruce JacksonPublished in Investing Strategy on 24 July 2009

Selling shares really is much easier than you think. You should do more of it.

Investors often find it difficult to sell their shares. If I had a pound for every time someone said to me "selling is the hardest investing decision", I'd be a rich person.

What hogwash. Selling is easy. Just click the sell button. Poof. Shares out, cash in.

It can't get much easier than that. And with trading commissions so low, there really is no reason not to sell.

Yet people still struggle to sell. Why?

Bad Reason #1 -- Laziness
The easy option is to do nothing. The same goes in business. Most businesses simply keep doing things the way they've always done them, "because we've always done it that way."

Why change? I'll tell you why. There is always a better way of doing things. You need to constantly challenge yourself, and challenge the status quo.

When it comes to investing, people don't challenge their investments. They don't look at them and say "this one is overvalued now" or "that one is struggling to grow its market share" or "I think there's trouble ahead for this sector".

Unfortunately, there are precious few "buy and hold forever" companies. Just ask the people who thought Royal Bank of Scotland (LSE: RBS) and Lloyds Banking Group (LSE: LLOY) were large, stable, high yielding and cheap companies.

Bad Reason #2 -- Boring
Buying is far more exciting. It's always fun looking for the "next big winner", the share that is going to make your investing fortune. People spend most of their time looking for this illusive company, the next Tullow Oil (LSE: TLW) or the next GlaxoSmithKline (LSE: GSK).

Whilst there is nothing wrong with looking for tomorrow's big winners, I'd suggest investors should spend much more time monitoring their existing portfolio stocks.

Things they need to keep an eye on include…

■The competitive environment. If you own shares in J Sainsbury (LSE: SBRY), you might want to think about whether the resurgence of Wm. Morrison (LSE: MRW) might impact on their future sales growth.


■The economy. In the past 12 months, as we all found out to our cost, ignoring the economy can be wealth destroying. If you think the economy is in for a rough time over the next few years, you might want to think about selling your shares in companies selling discretionary goods, like DSG International (LSE: DSGI) and Carpetright (LSE: CPR).


■Valuation. When a company reaches your estimate of fair value, you should start selling. It's as simple as that. So why don't people sell on valuation grounds? Read on…


Bad Reason #3 - Fear
People fail to sell because they fear of missing out on a huge winner. Fear and greed are the two most powerful emotions investors have to deal with, almost on a daily basis. Fear can come in many guises, but is most powerful when people fear losing money. How else do you explain the massive and indiscriminate selling spree witnessed in March this year? It was based on fear alone.

But there's another thing investors fear almost as much. They fear of selling too early. The stock market is littered with tales of people who bought Tesco (LSE: TSCO) shares in the early days and hung on all the way through to now, or Domino's Pizza (LSE: DOM), one of the best performing shares of the last decade.

The stories usually recount how these great performers were, at various times over the years, over-valued. Yet the companies kept growing, kept beating market expectations, and the share price ended up providing these canny investors with returns in the thousands of percentage points.

This is very much the exception rather than the rule. The intensely competitive environment usually puts a cap on the long-term growth prospects of most companies. For example, although Domino's Pizza dominates the takeaway pizza environment today, it wasn't too many years ago when many thought PizzaExpress would open hundreds of takeaway outlets and rule the world of ham, cheese, tomato, pineapple and anchovies.

Fear not. If a company in your portfolio is highly valued, just click and sell. You'll most likely get the chance to buy it back at a cheaper price anyway.

The Best Parts About Selling
If this choppy market has taught us anything, it should be that you need to sell at the right time. It's not that difficult. And you know the best parts about selling? 1) It's cheap and easy, and 2) you can't lose cash!


http://www.fool.co.uk/news/investing/investing-strategy/2009/07/24/3-really-bad-reasons-not-to-sell.aspx