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Knowing when to sell is a tough thing to figure out. I think it’s harder than knowing when to buy. Knowing when to sell a winning stock is tough because on one hand, your gains are only on paper and are meaningless until you ring the register. On another hand, the upward trend is in your favor and you don’t want to miss out on future gains. Here are some examples and thoughts on determining when to sell that winning stock.
Sweet Chesapeake
My biggest performer this year has been Chesapeake Energy (CHK). I accumulated a fairly decent size position in this stock last year and continued to build this year. However, about a month ago I took about 50% of my position off the table and cashed in my profits.
Since then, the stock is up another $10; today, a new all-time high of over $65 a share! Am I kicking myself for selling a month ago and not holding on? I’m not and here’s why…
Taking a Profit Should Never Be Considered A Bad Thing
My profits are safe. Chesapeake and other natural gas stocks have been in parabolic movements as of late which makes many investors extremely nervous. A sharp correction in the stock could be ugly. The money I made on the stock is safe.
I Move In And Out Of Positions In Chunks
It is impossible to know for certain if your timing of a buy or sell is perfect. Therefore, to protect yourself, I recommend buying and selling your position in chunks. My default “chunk” is a third of my overall position. For example, if I like a stock, I will determine what position I want to eventually accumulate in the near term and buy a third of that position. If the stock moves lower, I’ll pickup another third. You get the idea.
Well, with Chesapeake, I sold a little more than a third (close to 50%) to take profits. By keeping a large stake I am able to take advantage of the trend higher continuing. If the stock went lower (which it didn’t), then my profits are safe.
Do you own a Skyrocket Stock? When do you plan to sell part or all of your position?
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Comments
06.19.08
Hi,
I've studied investments and own some stock and I'm really curious where you get your 1/3 chunk strategy from. Why 1/3? I've never heard of anything like it.
06.19.08
To quote Jim Cramer:
"Bulls make money, Bears make money, and Pigs get slaughtered."
Knowing when to sell some or all of a stock is a skill and it requires research. Good call.
06.19.08
My point isn't exactly to trade in thirds, but to move in and out of positions in partial chunks to avoid buying at a high and selling at a low.
As a stock climbs, if I want to take profits, I'll sell approx. a third of my position. If it goes higher, I'll sell another third, etc.
If a stock I like drops, I'll buy a third. If it goes lower, I'll buy another third.
Obviously, stocks don't always trend in a constant direction, so it doesn't always work as cleanly as described.
The goal, however, is to protect your money and to solidify profits.
Thanks for the comments.
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