Selling the peak?

So, I’m just interested in the strategy of long time investors on when to sell.

I started investing with the aim of long term, but as I was finding my feet, I over-invested in tech stocks and not enough in ETFs. I’m gradually increasing the percentage of ETFs in my portfolio, although my plan was to just hold the stocks for a long time too and continue buying into them at a slower rate so they make up a smaller percentage over time.

Some of the stocks in particular have had occasional incredibly high days and I’ve resisted selling, only to see them return back to their regular levels and crash in the last week. One example is NVDA, where I started buying in at 510, it reached a peak of 645 which was something like a 15% rise in a week, and it’s been downhill from there. Ironically, even at it’s current 550, it’s still better than it was when I started investing, but as I’ve been dollar cost averaging in each day, my actual average is about 575 so it’s an overall net loss.

While I think it’ll recover in the long time, I also feel like I was stupid not to cash in my gains on the day when it was unusually high, because I kind of knew at the time that it was overpriced then. In fact, I didn’t buy in more that day, but still didn’t want to sell. But I should have known it would be corrected soon enough, but didn’t trust my judgement enough.

I know the general philosophy of knowing what you think it’s worth and buying if it’s below that and holding otherwise, but I’d be interested to know if people have an exit strategy for if something grows too much too quickly. I’ve read articles from “professional traders” who I guess have a different aim, but who talk about exiting on a 10% or 12% gain or loss, but I’m guessing that’s assuming a strategy of buy once, hold, sell once.

Does anyone else cash in on the highs with the stocks they’d like long term? Or are all the long term investors here just “hold, hold, hold, it’ll recover eventually”?

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I like to think I’m a long game kind of investor but I did crack with GameStop …I panic sold @£200 a share as I thought it was going to crash

But I was happy with the return from £16 a share investment

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In general I just hold long term, however if a stock does rise significantly I try and reassess it’s intrinsic value to see if I can still justify holding it.

For example ASML rose quite quickly (and sentiment turned frothy) so I reviewed my model and even with generous assumptions it was still >20% above fair value so I trimmed my position.

TPI Composites is an example where it exceeded my upper value and I didn’t sell and missed out, which I guess shows that if you wouldn’t buy at the current price you probably shouldn’t be holding.

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One option is to top slice (sell a few of your holding) to grab some profits whilst not selling all of your shares.

One thing I do is set a trailing stop loss (manual at the moment, hoping FT adds this functionality) which follows the share price as it rises and then if it drops it auto sells for me and takes some profit. As the price rises so does the stop loss.

Hope that helps.

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Depends on stocks or ETFs. I’d not sell the core ETFs that should make up everyones portfolio.
The question that people usually don’t talk about is what you want to do with the money after you have sold an asset. You still need to invest it somewhere, and it needs to be an asset that will outperform your sold stock.
That’s not an easy feat and will most likely lead to underperformance over the longterm in most cases.

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The stock market will in all likelihood exceed previous highs, but this is not true for stocks.
From:

“Using a universe of Russell 3000 companies since 1980, roughly 40% of all stocks have suffered a permanent 70%+ decline from their peak value.”

It’s really hard to pick stocks, and it’s even harder to time the buys and sells well. Our biases tend to get in the way, as you suggested.

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I did this with 3D Systems recently, I actually did it multiple times as the price carried on up. I sold some at $29, $35 and $44. It topped out somewhere above $50 but it would have been extremely lucky to sell at the exact top.

The profits from those 3 sales more than covered my original investment

I’m still holding some but now it’s back at $20,

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Great Post.
I’m still new to this game.

I held a lot of stocks and due to my work load I don’t have the time to manage and watch stocks.

I did however wait for half of my 40+ stocks to climb green and sold them on.

For me a ETF for long hold like VUSA, VWRL, IKUD etc makes more sense.

I’m holding SHOP and SQ at a loss (£66. Been killing me these two) but I probably will sell them once into the green.

I’m trying not to get attached to stock.
For me 3M (MMM) has been great but of it starts to drop heavy I’ll sell.
Maybe buy back lower and start again.

I don’t have an exit strategy. I learned how to read the graphs but maybe the markets have been to volatile since I started in February.

Top slicing sounds like a plan @PeteL .

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Don’t look at price, look at other figures like price to earnings or price to earnings factoring in expected growth.

“Top slicing” or selling at certain percentage gains or losses is pretty arbitrary and doesn’t take into acount any information about the company, which I assume is what your initial investment was based off.

Not advice, but makes complete sense. Read some Peter Lynch to find out more, he has quotes like “I love it when the price drops, as long as the fundamentals are still consistent, as it provides a buying opportunity.”

The peak is arbitrary, the dip is arbitrary, if you assume that the correct price will be realised over time then buy when the company is good value.

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Taking some off the top does give you an opportunity to diversify though. Assuming you have something else to invest it in. The profits I’ve made from taking some off the table go straight back into something else.

I only really do it on investments that have gone over 100% (in the case on 3d Systems I was +600% when it topped, I also did the same with NVDA at +200% which wasn’t quite as good a move as it carried on up and is still above the price I sold some at)

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Which outcome would you prefer:

  • Sell, locking in your current profit, but missing out on any future gains.
  • Hold, hoping for future gains at the risk of losing your current profit.

Both options come with a generous side order of making you feel stupid.

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thats why I top slide, sell some stock to take some profits which I can use elsewhere whilst leaving some to either take future gains or loss - a sort of risk mitigation

  1. Assess expected revenue

  2. Assess the expected time frame

  3. Assess the new gravity of selling

  4. Evaluate the final decision

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That is a good way to think about it: look at possible future outcomes and take action (buy/hold/sell) to minimise your future regret.

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I also think it depends on how long your long term plan is? Is it 3, 5, 10, 20, 30 or even 40 years?

Also give you some breathing space, you don’t want to have to panick buy/sell regularly or trying to time the market.

Rather look at the underlying trends of the market and society as a whole, what is happening in the world that effects the market, is it long term (in relation to your plan?)

Do you need to use any of your investment for other things like buying a house etc?

And look at the underlying company and the P/E rating and other fundamentals including any dividends and costs etc

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