I took profit from my top performing stock recently. I was conflicted after selling, and thought that recording it would be a good idea. Others can learn from it, and I can look back next time and see if anything has changed.

For any investment made, I am prepared to hold it for at least ten years. However, my current investing strategy suggests selling if fundamentals change or the company is overvalued (to buy again if opportunity presents itself).

Before

The stock price ran up quite a bit over a few months and I felt it was starting to get overvalued. I looked at the chart and it was close to one of the resistance lines. Then, I decided to sell tomorrow if the price went below a resistance. This decision was made the day before to minimise outside influence (not sure how this will turn out in the long run, we’ll see).

On the day itself, the price dropped below the resistance, so I sold.

After

This stock was the main driver of my portfolio performance (side note: 1Q 2019 update coming soon!). Naturally, it was sold for a good profit. However, I was tempted to hold longer for multibagger gains (greed?).

I cannot predict how much more will the price increase by since the stock is no longer undervalued. My investment thesis is also not valid anymore.

Even so, I’m not sure if I sold too early, as it could turn out to be a multibagger. Perhaps next time, I could sell a portion instead?

Then again, my main warchest was depleted, but this divestment means that I have more bullets now.

Conclusion

At any point in time, the price of a stock can only do three things. Go up, down or sideways. After selling, there will be times where the price goes up and I regret. This is a reminder to myself that I am not omniscient. I cannot predict the top or bottom of the chart so there will be times where I sell too “early”. As long as it works (beats index), I should not be unhappy with it.

Side note: The US yield curve starting to invert (22/3/19). Will there be a GSS soon?


Categorised in: Investing, Mindset, Personal

2 thoughts on “Portfolio’s First Divestment

  • Happy says:

    I do hope there is a GSS soon. I recently took profit as well. Never wrong to take profit i guess! If not now, then when? Nobody knows.

    • Ben says:

      True, taking profit is good. However, there’s this theory about the distribution of your closed positions I read somewhere online (can’t remember where). Your returns on individual stocks should look like a normal distribution, but if you take profit too early, there will be very few (if any) on the right tail of the distribution. This will cause your overall performance to suffer greatly, because you’re killing the golden goose.

      Think about it this way, 20 years ago, if I die die hold 5 stocks, if 1 of them is Apple/Google/Berkshire etc, even if the other 4 went bankrupt, you will still have a net profit because of the ‘star’.

      I’m trying to not accidentally kill the golden goose, so that I will not kick myself 10, 20 years later.

      (This only works for long term investing though)

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