STT W/end Lounge 11-13th July, page-67

Hi zenvestor

Your examples of holding stocks when they go up and then holding them all the way down again is a common problem that many long term investors have.

I am not a short term trader but I still need to have a strategy of when to sell.

I write down the reasons why I purchased a business.

I separate my investments into 'high risk' and 'low risk'.

With the 'high risk' businesses, even though I aim to hold them long term or until the reason I purchased them is no longer applicable, I will try to take advantage of any spike in the SP by selling part of my holding, I can always buy them back if the SP falls; if the SP keeps rising then I win with my remaining holding. In the cases where I have sold part of my holding (near the highs) it is also easier to sell some more when the SP goes down and to sell out completely if the SP continues to go down. I also assume that 'Mr Market' knows more than I do and I keep an eye on the volume of shares traded, if the SP is going down on high volume, it is probably time to start selling.
Note: I sometimes hold onto a very small amount of shares so that I can participate in any future SPP, as these can be quite rewarding.

For the 'lower risk' businesses (these will all have earnings), I will be able to monitor their earnings growth, debt, PE's etc to check whether the stock has stopped growing, the industry changed, the debt increased, it is overvalued, etc. These facts and others will help me decided whether to sell. I will sell part of my holdings if any of the above occurs and then continue to monitor the situation and possibly sell the rest depending on what occurs into the future. I tend to listen less to 'Mr Market' with the 'lower risk' businesses, ie I back my own judgement.

I try to limit my exposure to one sector or one business. I normally do not like to have more than 10% invested in any one stock. For the 'high risk' businesses I normally do not invest more than 3% of my portfolio into each of them.

I keep asking the question as to why I own each business and whether I should sell or hold. Sometimes it is best to sell if you are not sure, you can always buy back in later when you are more certain of the outcome. Also accepting that you were wrong about a business and selling at a small loss is better than holding on long term for a larger loss.