Investing 102

[GregWeld]

Many people ask me "when should I sell"? Good question... and maybe a harder one to answer than "when should I buy"? So this mornings coffee and reading - while the sun comes up (it's truly glorious here in the valley).... I came across an article on Seeking Alpha. The author is attempting to set up a strategy for buying on the dips and for when to sell. In a nutshell he's selling 25% of his stake if the shares rise 50% and he's selling 50% of his stake if they double.

Here's my problem with a strategy to sell WINNERS..... They're usually winners for very good reason(s). They're doing things right and making money and investors want to own them. So my question would be - why would you sell? Just to take profits? You pay taxes on profits - either long term capital gains - or if you're not careful - short term capital gains. You pay ZERO taxes on gains that are paper.

Here's my other problem with selling winners.... now what do you do with the money? You want to keep invested... so if you're not selling because you need money to buy a house or apartment building or something like that... you're just selling because you have a profit. So now you have to come up with another winner. That's usually harder to do than you think.

We've been in a market where the saying is "a rising tide floats all boats". Pretty much everything is going up - mostly because the market has nowhere else to put their money and make anything on it. Remember a market goes up when there is more buyers than sellers. It's really just that f'n simple. Right now - nobody wants to put their money in a 1% bank account or a 2% bond. But here's the thing to remember. If you've gone up 40% -- and the market takes a downturn (who knows for what reason and it doesn't really matter)... and it goes down 15%... it's down 15% but you had a 40% increase - so it's really still up HUGE.

People love to sell when the market is "down"... but if you keep your head on straight - and really look at the numbers - you've made a pretty nice gain even when it's down. That's usually when I'm a buyer not a seller. And I almost never sell my winners.

Look at a chart -- stretch it to 10 years -- if you'd have bought 10 years ago - how many doubles would you have now in that name (whatever you choose to look at)? If you sold at the first double - where would you be? And that's my point for this morning. Sell for a good reason - not just because you enjoyed a superior gain.