Observations

It is easy for investors to know what to buy and when to do it. Optimism, more often than not, obscures the decision process, making it easier. What is more difficult is selling your positions. Why should you sell? When? How much?

In my talks I delve on the need for an investment process. Buying and selling decisions should relate not only to the specific stock, but also to the overall investment strategy and profile of the investor.

My personal investment strategy is based on my beliefs, which originate from years of research, and on my personality. My paramount objective is to minimize risk. This forces my investment posture to be flexible, and to reflect and adapt to the changing economic and financial environment.

The time to sell is when you realize you have made a mistake and the action of the stock does not fit your strategy and hinders the performance of your portfolio. My selling criteria may be different from yours, because my investment style is different from yours. I follow these criteria. Start selling when ….

1. … the stock becomes more volatile than the market, thus adding risk;
2. … the stock begins to under perform the market or other stocks in the portfolio;
3. … the stock declines close to 10% on light volume.

I made two major bad choices for my clients in the recent past: MO and BBT. My action for my clients has been to gradually sell and transfer capital to better performing stocks.

Which brings me to another important consideration. Small decisions are psychologically easier to accept. If you are not happy with the performance of one of your positions, reduce in small steps your holding. Increase the amount of better performing positions. But do not exceed 3-5% of the total portfolio.

Finally, do not sit on your hands. A Zen saying goes like this: When in doubt, ACT!

(This Observations appeared in the issue of 4/21/2003 of The Peter Dag Portfolio).

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year by Timer Digest

To find out more about my in depth views of the markets and my strategy just visit our website https://www.peterdag.com/ where you can subscribe to The Peter Dag Portfolio. You can also call me at 1-800-833-2782 to discuss your specific investment portfolio.

Disclaimer.The content on this site is provided as general information only and should not be taken as investment advice nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.