I'm wrestling with a "sell strategy" for certain growth stocks
that start as small green shoots
and then climb and grow over a couple of years.
Lately, I've seen a couple climb nicely and then get burned.
ie - CREE in leds, ARMH in low power cpu's, Garmin, etc
SO - what's the give & take of holding too long and losing,
vs taking say 25% profit - and then re-purchasing the stock -
or using some other "discipline" to hold onto gains...
but not lose the growth still perceived ?
A stop loss order could work - but takes constant monitoring..
I like the stop loss order - it keeps you invested and can help keep you
from riding the Tsunami all the way to Tokyo. But you are right, it does
take some monitoring - though I'm not sure how much burden that is. You
could set, and reset, the order weekly or monthly so its not like you'd have
to watch it all day, every day.
As far as selling now to capture the gain and the repurchasing - this only
works if you're trying to hold a dollar position in the stock; its a waste
of time if you're trying to hold a "number of shares" position. For
example, if you bought 100 shares at $10 each you've invested $1,000. If
they are not worth $1,000 each the total value is now $10,000. So if you
sell all of them to lock in the gain THEN repurchase another 100 shares all
you're really done is capture the gain and paid the tax - you still have all
of the money invested in the same investment (this may sound simplistic for
the folks here, but I see this way more often than you'd imagine).
On the other hand, if your intention is to hold a particular dollar position
in the stock - say you want to keep $3,000 worth of the stock - you could
simply sell of PART of your holding. Doing this captures the gain on the
amount sold but limits the tax implications to only that part sold. You
stay invested in the item you bought for the amount you bought and you've
captured some gain and gotten some cash to invest elsewhere.
Gene E. Utterback, EA, RFC, ABA
This is a really good question that goes to the heart of the difficulty
with buying individual stocks. For most investors, stock-picking implies
turnover - you don't buy an individual stock to hold forever, you buy it
because you think it will do better than average between the day you buy
it and some unknown date in the future (but not, typically, "for the
rest of my life"). Accepting this premise means you will sell every
individual stock you buy and replace it - it's just a question of when.
Particularly with growth stocks, this seems to be a good assumption as
the asset class is littered with fad stocks, technologies with short
life spans, unrealistic growth assumptions, hype, etc.
When you buy a stock would be a good time to set expectations for it and
a plan for selling. There's no rule of thumb because it depends on your
stock-picking approach (momentum investors might sell at small drops;
contrarians may instead buy more). It should have a narrative like "I
think X's technology is going to be adopted a lot more than is currently
assumed, and they'll make a lot more money than is currently estimated,
so the stock will perform above-average once people figure that out."
Then that either pans out, or doesn't, and you sell. If you don't have a
narrative for buying it, a reason you think it'll do better, why are you
A mistake many people seem to make is revisiting old purchase decisions
- coming up with new reasons to own a stock, or failing to sell when the
premise for buying has either come to fruition, or not. I think the
stock will hit $50 if things go really well, it hits $55, and then you
say "well maybe it's going to $75." This may be motivated by a behavior
called the "endowment effect," valuing something you have just because
you have it, which is something to watch out for in investing generally.
One test of this is to ask: would I buy this stock today at the inflated
price? If not...why would you continue to hold it?
Last thought: all-or-nothing decisions are almost always wrong. They're
only right in this case if you hit the Perfect Sell Date which is just
about impossible. It's an argument in favor of both buying gradually,
and selling gradually.
I like selling covered calls, but I am long CREE and afraid to do it
because it could take off like AAPL did and I wouldn't have the guts
to buy it back.
CREE June 42.50 calls are at $1.08 which is great for someone just
buying CREE now.
A repurchase at nearly the same price does nothing for your net worth
and doesn't "lock in" anything (except taxwise, which is typically a
I expect you know both the fundamental and technical ways to set up a
selling point, so what do you really mean? Without a revisit to
clarify, we must guess something like you saw a successful sector and
chose a stock that seemed to have the most momentum in that sector...
If so, than the CREE chart just screams to me to sell a while back -
momentum was not only lost but turned down. If you waited too late and
fundamentals are ok, then it might be reasonable to not sell or even
wait for stabilization at a lower level and buy more cheap. ARMH looks
to be in the lost-momentum phase where it is hard to say if it will
For me it is hard to assess momentum of individual stocks due to
volatility, so maybe that moving average technical witchdoctory will
help. But at least for narrow etfs, I check out their momentum vs the
sp500 AND their sector, with overlaid graphs showing the percent
changes for various periods. Maybe overlay some foreign indices if
they apply. Then you can see if it is being affected by sector or
nationwide issues and how it performs relative to it, rather than just
being an abstract wiggly graph (or worse, a number). You must check
various time frames to factor out the arbitrary starting point offset
I hate being a momentum investor, but I learned the hard way that the
innocent fundamental-investing bystander gets knocked about by
NEGATIVE momentum and must wait an exasperating period for it to
correct. By then the fundamentals may have degraded and you never make
it back. There is a limited amount of investment money in the world,
and people may sell your (good) stock in order to buy a (better) more
fashionable one. So you can really lose you by not joining the
momentum crowd in not only buying but selling.
Unfortunately markets overshoot up and down, and selling-to-the-
greater-fool theory actually works unless you are in the bottom
quartile of foolishness. Hard to do it by stop loss orders alone,
because you will tend to get nailed by momentary dips or plunges.
There are ways to combine if-then-if sell orders and use percentages
rather than absolute numbers, but I haven't yet found a way to rig
this better than nervous manual ticker watching.
Yet studies show that the innocent fundamental-investing bystander who
buys and holds stocks for the long run does better than the typical
momentum trader you are describing.
I think waiting for recovery after a correction is only exasperating
if one either does not appreciate how re-invested dividends are buying
stocks at bargain prices or one is obsessing over the value of one's
portfolio in the short run.
Those who worry about the value of their portfolio on a daily basis
should not be in stocks.
Then the "typical" momentum traders must be even less competent than
the buy and holders. I do realize you want to address and forewarn
investment newbies and also people knowledgeable mainly in how to make
their high salary rather than safe returns. But I was replying to an
OP who seems savvy enough.
Judging from years of posts by the OP, we both have decades of
experience with buy and hold of timid mutual funds approximating sp500
and bond indices. And for me, decades of testing out hypothetical
trades and watching their results, but not daring to do them in real
life (J Bogle would disapprove) until the success rate proved
I bet the OP (and certainly I) are still mostly concentrated in
holding boring stocks as you describe. I recently added to a large CVY
etf position which has triple the dividend yield as SPY sp500, yet
matches rather than lags its price chart. This is for money that can't
afford to be lost, but isn't likely to do much more than inflation
once you factor in some of it being in bond funds.
Now if you also do modest rotation, like between the morningstar boxes
of value/balanced/growth for small/medium/large cap based on changes
of the business cycles every 18 months... you ignore momentum traders
at your peril. Your trade prices will be affected by them, and you can
either anticipate this or be a passive victim knocked about. I only
took heed because it works.
The big payoff comes from those brief windows of opportunities when
risk assets surge, maybe only a couple of years per decade. This is
where you make mammoth paper returns as easy as shooting fish in a
barrel. The only trick is to preserve at least part of your gains,
which is unforgiving work but rewards the most vigilant even when you
are an amateur.
The momentum premium itself is not what you shoot for - it is a zero
sum game. It just serves as a flag to get in on a genuinely good thing
(eg. midcap growth, or emerging markets) and a cushion for getting
out. Well, it might be above zero sum if global liquidity is pushing
up total p/e ratios. And the approach certainly can work and lead to
early retirement vs "buy and hold and never retire".
My SLV etf fell 30% last week; should I have NOT then followed it on
an hourly basis to protect my still positive gains? Any high risk
position has one week per decade where it pays to watch it like a
hawk. After all, it gave huge paper gains for which one only has to
lock in about half of it to make it worthwhile. Something I did
successfully for cotton and sugar etc after pointing out their
historically persistant trajectory on this forum last year. It's not
an inconvenience; it's a rare and exciting privilege, especially with
ever handier digital monitor tools.
The stocks I find boring are young, speculative ones. They possess too
little data for me about how the business is run to say much that is
intelligent, generally speaking. The very old companies' stocks are
not boring to me. I like reading their fundamentals and how they have
done for the long run.
I think setting aside say 5% or so of one's portfolio to see if one
can use momentum or other unproven techniques to do better
consistently is fine. But I would call this what it is: Gambling. So
the person needs to be psychologically prepared to lose all the 5%.
Just my opinion.
First, to me it's fine if you view SLV as part of a gambler's game and
want to see if you can make a little killing by moving in and out of
same. As far as enjoying the game with precious metals, sure why not:
Move in and out according to whatever momentum witchdoctory you are
Second, I am not well read on what role precious metals should play in
one's portfolio for the long run. What do Ben Graham, Jeremy Siegel,
Bob Shiller and Warren Buffett say about precious metals?
I am fine respectfully agreeing to disagree with your point of view.
Folks can read and see the reputable studies generally support my view
that short run stock investing is gambling which may be meaningful
entertainment to some. I won't put my life's savings on it, though.
I don't gamble, period. In person, people consider me almost
pathologically risk averse. Yet I doubled my converted Roth in last 6
months, alluding to my trades on this forum as it happened. I have
used consistently successful momentum type approaches for decades
such as sector rotation funds and discussed it here over many years. I
preserved my investments publicly here in the 2008 crisis using the
same principal - liquidate into downward momentum and reinvest with
upward momentum. The fantastic benefits of limiting exposure to losses
were criticized here as I was doing it because of some trivial extra
trade fees vs buy, hold, and bleed. It is essential for me to
outperform sp500 and I don't and won't tolerate backsliding or an end
to early retirement.
Now look at my original reply to OP which so drove you to intervene
here. I didn't advocate momentum trading, I just said the technical
and fundamental approach didn't need restating and could only guess he
was already doing momentum. Then told how I did it. I have left out
some things that helps the success due to lack of interest.
I tried cleaning up your post, too - I thought it was
the URL which contained an obvious bad word.
As you can see, the filters do keep an amazing amount
of bad stuff out of here, but I've run into them being
very much overly aggressive before, too.
I have been off line for a few days. Tomorrow (Sunday) I will review
the post and deal direct with the OP.
Meanwhile, please remember our request to deal with the moderators by
email, and not through the newsgroup.
With sincere apologies to dapperdobbs and Bread, copied below is the
post by dapperdobbs that was bounced because of the automatic
My unavoidable absence from watching the newsgroup is at fault, as is
an admittedly conservative filtering process. Accordingly I have made
major changes in the filtering process to eliminate these problems,
and other changes will be made and announced in the near future.
Meanwhile, here is a copy of dapperdobbs post that triggered the (old)
posted by dapperdobbs
Keep tabs on the business of the company. (Specifically not being
sarcastic: a book on gambling would, I believe, cover the topic of
money management, or how much money to leave on the table and when.
This is also covered in commodities trading.) Otherwise, in investing,
"Security Analysis" (Graham, et. al.) applies. If you were smart
enough to find a growth company early, why begin to doubt your smarts
when it is ten times what you paid for it? The same analysis still
applies, although there may be ten times more to analyze.
The question is a good one - will a company be a CSCO, or a MXIM, or
will it be more like MSFT, or is the company an XOM or a MCD? (Or is
it a Merrill Lynch, or C, or any number of small companies that had a
growth spurt, then went under?) The only way to tell is to watch the
business of the company, it's markets, and the economy in general.
Another issue is your private income/ expenses and "How much is
enough?" If you have large gains that make you uncomfortable, if
you're good (or lucky) with charts and crystal balls, you might try
any number of tactics to try to lock-in profits, but it's possible to
lose money in 'safe' stocks, too. I used to play chess quite a bit, so
the phrase "improve your position" is a familiar one. Sell 25% at what
you believe is a high point, then buy it back when it has dropped in
price enough to cover your taxes paid. That also raises your cost
basis. Or look into options (study it carefully and paper trade until
you know what you're doing).
The big differences I see are summarized in the phrases "informed
estimates" versus "risk management".
Bread, thanks for the link to the algebra rejected posts site. I do
not like to miss George's posts. I would be so much dumber without
Skip, oh my goodness, the junk in the rejected posts list astounds. I
dunno if I would change anything except opening a line of Usenet
credit with George.
tnx all - lots of good info and threads to go back and read.
one concept that I learned about a long time ago
was Michael Porter's five forces -
As has been mentioned,
the casino analogy is a good for viewing investing strategies.
Kenny said it.... know when to fold em, know when to hold em.
I'm an "investor" not a "trader",
so I look for companies that will adhere to Porter's five forces,
and grow strong....
but sometimes a curveball comes into the picture,
and the "barrier to entry" is not as high as thought;
like with my Cree stock....
or Rimm vs Android/Apple smartphones
or Garmin vs Google smartphone app
Which momentum indicators do you use? Congrats on doubling your
I established a postiion in APOL a number of years ago, and began
selling when a) the founders (a huge position) thought about two
classes of stock, then reversed themselves, disturbng my confidence,
and b) when the chart started looking like Magic Mountain. But I sold
too soon - the stock went on to double my average selling price. It
has since fallen back 50%. I'm not complaining, but a part of the game
is price - perhaps especially buying into large cap value at l-o-w
prices (and I think Elle will agree with that). I stick with income
and balance sheet statements as primary, but Mr. Market does get
excessively 'happy' from time to time. You also seem to favor
'informed decision' as opposed to 'risk management'. (P.S. My
apologies for disrupting the thread earlier, it was thoughtless of