What’s your Sell Discipline?

April 30, 2008

In these volatile times, knowing when to sell is of prime importance. We spoke to several money managers this week about when they know it’s time to sell:

  • Bucky Hellwig, Morgan Asset Management (Large Cap Value):  ”We don’t set specific sell targets. A stock generally becomes a sell candidate when we see deterioration in its ranking within the value universe. When that occurs, it could trigger a sale unless the fundamental analysis is compelling for retaining the stock. Again, we want to try to avoid value traps, so we usually do not end up holding stocks that are laggards or exhibit poor relative strength. Also, we may exit a position or reduce it if it is removed from our benchmark index.”
  • Sarat Sethi, Douglas C. Lane & Associates, Inc. (Multi-Strategy Core Investors): “As long-term investors, we do not use automatic sell triggers in our clients’ portfolios. We will sell stocks for a variety of fundamental reasons including change of control, an adverse change in management, negative shifts in strategy, or other factors that lead us to believe our original investment thesis is no longer valid. Of course, we will also sell stocks if valuations become excessive compared to our assessment of their long-term value.”
  • Richard Parry, Tom Johnson Investment Management, Inc. (Deep Value & Relative Value Stocks): ”We create targets based on relative valuations. When we buy, say, Mattel, we might have a price target of $28, but that continues to be adjusted each quarter as we review their earnings, their cash flow, their debt and the valuation going on across the industry. But we certainly have targets. Each of us independently comes up with initial expectations and we continue to talk about them periodically as some of these prices approach their price targets. Historically and in general, our targets are not going to include much of a momentum valuation. We’re usually out of a stock a bit too early, but we’re willing to take profits to go and search for other value or relative value stocks.”

For the full investing strategies report, including full interviews with each of these portfolio managers, overviews of their investment philosophy and stock picks, click here.