What are your guidelines of when to sell (and how much) of a particular stock?

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While the classic acceptance is that the profit/loss is determined at the buy point of a position, in general, buying seems to be much more understood then when or why to sell an investment. So, excluding selling equities as a means to achieve rebalance, what are other reasons, and what are the triggers or gates – that you use for selling a stock/equity. What additional sources or resources would you both recommend to better understand selling (and sell timing) of a stock?

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Asked on April 11, 2021 11:18 am
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HI there,

I've spoke about my philosophy around this many times. My approach is two-fold in that it differs based on the type of stock I am buying. If it is a Foundational stock - one that I intend to hold for decades, then there is no defined exit plan. I invest and stay invested unless something fundamentally changes that would make me reconsider that investment. Dan has a similar approach.

If it is a growth stock - I always have an exit plan despite the fact I still buy with a long-term mindset. It is rare I buy something that i don't intend to hold for at least five years but even at that, I will sell and take profits regularly. Typically when i buy a stock, I set my exit plan. So that may be selling 1/2 or 1/3 of my position and is usually done with the goal of recouping my initial capital and then letting the rest ride. My timeframe, target etc will all depend on what stock I am buying. The more speculative, the more I'll likely take out and the quicker I'll act. There is however, no cookie cutter approach.

What I will say, is that it is important to have a plan that lines up with your risk tolerance. Case in point, Dan typically doesn't take profits on his growth stocks and just goes with it as he has a higher risk profile than me. He will then unload if a position starts to account for a bigger % of his portfolio than he is comfortable with. Me, I take my profits much earlier. This caps my upside, but also limits my downside.

I should also point out that since I am an investor (not a trader), I am not interested in timing the markets. So my plan is pre-determined and I stick to it. So if I buy a position and intend to recoup my initial capital after it gains 100% - then I do so regardless of time/momentum or other technical indicators.

Mat

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Posted by Mathieu Litalien
Answered on April 12, 2021 5:21 am