More About Selling

The reader whose study prompted my video on rebalancing left a follow up question. He asked about my sale of half the position in Vietnam Opportunity Fund (VTOPF) that I disclosed in a video post a couple of weeks ago.

Specifically he wants to know if there are certain triggers I use to decide when I think a position has become too big.

There is not really an exact trigger. As a matter of philosophy I am not a big fan of absolutes like always selling after an X% gain or loss. From the view point I take, longer term usually, I don't think it makes sense for me to sell after a 15% gain or an 8% loss, am I not talking about discipline that needs to be exercised by a shorter term trader.

I need a little more information about the move in price to know whether to sell or not. With the Vietnam Fund I bought in last spring. I had been watching it for a while before I bought and have obviously been watching since I bought too. It has behaved a certain way in that time and then a couple of months ago it started moving higher in a manner that was uncharacteristic of the last year or so. This caught my attention. Finally it went parabolic and having seen this movie over and over my gut said sell half. So far it was a good sale but to be clear I still own shares and so hope it goes higher.

Another example of a sale that was not as good was selling a half position in Stryker (SYK) last summer at what I believe was $42 (it may have been $41 or $43 not sure). The idea behind the sale was to reduce volatility in the portfolio. The fact is it did reduce volatility no question and after hanging around near where I sold it the stock went on a tear; it closed Friday at $62.41.

In a way it was a bad sale, yes, but it achieved the objective. The sale was not a function of my thinking the stock was broken, I did keep half, but the effect I thought the stock would have on the portfolio. I think judgment on this sale could be spun either way.

A third example of a stock sale is from a couple of years ago where I did get the stock wrong and I sold because I did think it was broken; Symantec (SYMC). You know the story; it is compelling but did not work. I bought it almost across the board at what I think was about $30 (I did not look up the number). Shortly thereafter it announced it was merging with Veritas and the stock gapped down to about $24. I gave it a couple of weeks for the dust to settle thinking it might snap back some but it did not. I sold the entire position at either $21 or $22.

This was bad because the loss was about 1/3 but it was good because it went to the mid-teens after I sold. Again it could be spun either way. I did not look up the exact numbers because it is unnecessary, the magnitude was it was.

All three examples involve multiple ingredients. If you invest longer term I think this makes sense but if you trade short term not so much.