In my last post I asked question When is a right time to buy declining stock? Well as you know this question is strictly practical as I am analyzing buying two names.

Today I would like to present my thoughts and potential answer on question: When is a right time to sell stock? I would like to present my point of view on some examples from my portfolio to make post practical, not theoretical.

So, When is a right time to sell stock?

It is not an easy question, but there are some potential answers:

  • Never
  • When there is profit
  • At all-time highs J (I would love to know when is that)
  • When you see better investment opportunity

Well, there is a grain of truth in each bullet above. As you know many stocks are in long term growing trend, so keeping forever might be quite beneficial (if only business is doing well). On the other hand there is a temptation to sell with profit and find some new opportunities.

From my perspective I try to buy opportunistically and so far I have no idea when to sell the stock J I need some framework.

Lately I saw an interesting picture from Kerry Balenthiran on Twitter:

image001

The same is true for many stocks in that sense that there is a rational path (growing) and this is combined with value, and there are also prices, which fluctuates. My idea is to sell the stock when price is significantly higher than value and buy when price is lower than value. So easy to say!

Let’s see on example. I have ADM in my portfolio. For now my profit on ADM is around 30% in one year so definitely price increased stronger than value (selling indicator, but the question is whether price > value, or when buying price < value by more than 30%). On the other hand shares are not at all-time highs and in long term they are growing. This means that there is a possibility, that one day shares will be higher than today (all time high is around $50, so there is 10%+ growth potential) – this is “keep longer indicator”.

Now if we look on the business prospects and what management is saying: With improving market conditions and a large U.S. harvest, combined with the team’s solid execution capabilities, we feel good about the remainder of the year and a stronger 2017.

Well I can imagine that within 2017 people will be able to pay more for ADM so I plan to keep my shares a little bit longer. On the other hand if I were to read that ADM business is about to be flat in 2017 I would sell the stock.

Next two examples are AAPL and BEN. Both names created total return around 20% so far. These names have one issue in common – tremendous amount of cash on balance sheet. There is an issue whether Trump will reduce taxes on cash held overseas. I believe so, then I plan to keep my shares. This brings me to another conclusion. When there is a story to be played by investors it might be a good idea to keep shares. Also keep in mind that in long term these shares/businesses are growing and we are below all-time highs.

 

Well, after such consideration I came to my final conclusion… I am definitely biased on companies, which shares I own… on the other hand it is well known fact, that investors sell too fast and keep losing positions too long. Maybe that’s good that I want to keep shares longer than shorter?