In our Investing Strategies report this week, we talked with a variety of Portfolio Managers about their investment strategy. As part of this, they talked a little about the exact moment they decide to sell one of their holdings. Here’s what three of them had to say:
Ms. Larsson: We sell if we made a mistake and our initial thesis was wrong or didn’t hold. We sell if the performance met or exceeded our expectations, or if our risk/reward characteristic has changed and no longer meets our investment guidelines, or if an additional investment idea has a more favorable risk/reward characteristic.
Mr. Keller : We sell when a stock reaches its intrinsic value. The good outcome from our perspective is when we purchase a stock at a large discount to intrinsic value, the intrinsic value and share price grow over time and eventually converge, and we exit at or near our estimate of intrinsic value. We don’t try to ride a stock above its intrinsic value because of positive price momentum. We prefer to transfer our assets into a different security with a discount to intrinsic value or just revert to cash. We consider that a good outcome, and we’ve been able to do that successfully a few times over the last couple of years.
Mr. Melvin: [We] sell when they get to be overvalued or fairly valued with no technical support or higher risk. We rank every stock one to 100 on valuation, one to 100 on technicals – which is price momentum and earnings momentum – one to 100 on risk, and when they get to be 70 or above, they become sell candidates. We may sell them earlier than that, but they’re sell candidates when they get into the overvalued stage, and then generally buy something from the top three deciles.
For the complete Investing Strategies issue, including full interviews with each of these portfolio managers, as well as additional portfolio managers from a wide variety of investment strategies, click here.