Having a good sell strategy when maintaining a portfolio is very important for long term success. Without a good stock selling strategy, investors may let their sell based on their emotions and not on a rational basis. Some investors do not want to sell when their stock is going down. I feel the same way, even though it may be bad. People want to break even before they exit a position even though there may be better opportunities out there than their current stock. I also sell too soon to secure my gains. This is called loss aversion and fear of regret.
I feel that I may have sold at the wrong time with my recent sells. My selling strategy is not really rational. I usually sell a stock when is gains 10%. Selling based on price alone is not a good reason to sell, but that is what I am doing right now.
Here is a list of all the stocks I have sold recently.
The 4th column is the gains I got on each sell totaling 56%. If I had instead held on to those stocks, my total gains would have been 169% (5th column), which is 300% more than I would have if I did not sell. If I add in the 35% gain I have from my new holdings, my total gain would still only be 90% compared to the 169% I would have gotten if I had just buy and hold the stocks.
I also use trailing stop on my stocks that are up. Trailing stop is an order that will ratchet up the sell price as the price of a stock goes up. It will become a market order if the stock price drops and hits the trailing stop price. With volatile stocks, the trailing stop will have to be large enough to weather the daily price fluctuations. I currently set a 3% trailing stop on my Capital One (COF) stock. So far, the stock has already dropped 2%, so if it drops 1% more, I would exit that position.
Right now, I am thinking about trying to refine my selling strategy. It is better to only sell a stock that becomes overvalued or because of a change in its fundamentals. My short term selling is causing me to incur short term capital gains taxed at my income rate instead of long term capital gains taxed at 15%.
[...] Stock sell rules at Investing Guide It looks like the author of this post is coming to the conclusion that selling overvalued companies is the way to go. I agree! [...]
[...] Stock sell rules at Investing Guide It looks like the author of this post is coming to the conclusion that selling overvalued companies is the way to go. I agree! [...]