Forum Topics When to sell.
RobW
a month ago

Hi Rick

Big fan of Matt and I must have read that article 20 times since published. I have resolved that when considering the sale of a high conviction 'overweight', pay as much attention to what you will do with the proceeds of the sale. A sale after considering a macro or geo political event or where these create a situation which is likely to unfold is the easy one as it is a clear 'Risk Mgt' issue. That said, I have generally favoured retaining the concentration of highest conviction stocks and shedding at the other end of the scale. This can lead to 'performing' high conviction stocks becoming even more overweight.

The second scenario is where you wish to lighten a holding purely because it is 'overweight' in your portflio. In assessing the destiny of the proceeds of the sale, I scrutinize my options versus alternatives and if these are materially inferior to my overweight position, I opt for remaining overweight. I have too often sold a position of a long term performer and re-invested in a stock which under-performs.Oh, by the way, I am not very good at holding cash.

And finally, to mitigate the risk of a surprise, I watch the stock like a hawk. In the main, negative turns of fortune for Companies evolve, providing ample warning signs and time to revisit against your thesis. I also accept that quality growth stocks will encounter falls of say 30% because of whatever noise. I am happy to ride that wave.

My journey also includes position building, where I average up. I tend to sell 10% of winners, so not necessarily the old 'Free Carry'. This naturally creates a safety margin. I also consciously determine my avg holding price since inception, this after considering all outflows and inflows for that specific holding. Provides another target to manage against. Targets stimulate the brain, particularly in my case, an ageing brain.

Take care.

RobW

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thunderhead
8 months ago

Thank you @mikebrisy for taking me up on starting a thread like this, and to everyone for all of the excellent posts already.


I have made this suggestion to Andrew, but it would be great to follow/bookmark threads like this for future reference. Even better if the feature is extended to individual posts (“favourite” it and view the favourites from your profile or the like). @Strawman

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mikebrisy
8 months ago

@thunderhead my sell process is simple.

  • In every stock I try to form a view as to the range around its value (scenarios or $min-$expected-$max)
  • This guides my level of conviction, i.e., where does the SP today sit relative to that range, and how consistent/volatile are the company's performance drivers (This prevents me from becoming a short term trader as you can only judge these things over the longer term. Although this means that sometimes I am too slow to declare the thesis is broken.)
  • My fund is essentially closed, so if I want to add a new stock or increase a position, I have to sell some of my lowest conviction holdings to fund it.


The last statement is not entirely true, as I hold some cash and index trackers in my fund, so that I can exercise optionality in timing my selling. (Somethimes this improves the decsions and sometimes it doesn't.)

There are two parts ot my ASX portfolio. What I consider Proven Businesses(65% value, 10 stocks) (see my profile) and companies Yet to Prove Themselve (35% value, 18 stocks) (held on Strawman).

In the proven businesses, the decisions are much more driven by my own analysis of valuation. I will sell down companies if their SP gets too high above my range of valuation. "Too high" involves some judgement, where I consider management track record, and volatility of key financial, operational and cash measures typically over 5 years.

Sell transactions are rare in my proven businesses. However, for example, I have sold out of $WTC on two occasions and bought it back again, over the last 7 years. I have also done the same with $PNV, which I include below as a case example.

My goal in holding a significant number of Yet To Prove stocks is to add to those that are confirming the thesis over time, until they graduate to the "Proven" category. So I am always looking for new ideas to add to the YTP bucket, and will readily exit those that in my assessment aren't making it. "Graduates" over the last 5 years have been $ALU and $WTC.

Here is an example of my buy and selling decision process in $PNV - my largest holding yet to prove itself.

Example $PNV

After taking an initial small position in November 2019, I built up an 8% Conviction position over 6 months as I developed a view of its value ($1.60-$2.50-$3.10).

In December 2020 SP hit $4.01. I couldn't get to reasonable assumptions in my model that could support that. So, I sold almost the entire position.

By Sept. 2021 the SP was back down to earth ($2.20) and my updated valuation range was ($2.75-$3.62-$4.50) so I bought back in and have been building my position ever since. It is now at its size limit.

Now my valuation is ($1.63-$2.46-$3.28) and although the SP has been volatile, neither SP nor newsflow has caused me to reconsider my position. I’ll update my valuation after the next results. In addition, $PNV has been high enough in the "merit order" of my holdings that when I have needed to sell in order to add something else, $PNV has always been well clear of the chopping block.

Important Note

You'll often see me refer to broker valuations and consensus ranges. I DO NOT BASE MY DECISIONS ON THESE! There is all kinds of systematic bias in broker valuations, and I would have got myself in all kinds of trouble if I had based decisions on this. In fact, some of my worst decsions have been when I have allowed broker/analyst recommendations to unduly influence me. But I do look at how broker valuations respond to changing information in the market, and I try to find out what is causing them to change their views. I have found that helpful.

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Seymourbutts
8 months ago

This is bloody brilliant stuff as always @mikebrisy. Really insightful and provides a different perspective on when to sell - arguably more important than when to buy!

Going to throw this one out there and completely understand if it’s not something you’d be keen on doing, but I think there would be a lot of members who would be really interested in hearing from you via a Strawman meeting or discussion.

I for one always find your content exceptionally valuable and I’m sure others would find something like this insightful! Especially for those less experienced in this space (me).

Again, understand if you’re not open to the idea but would be great to hear from you.

Over to you @Strawman



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west
8 months ago

Absolutely @Seymourbutts ????????????

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Strawman
8 months ago

Anytime! Just say the word @mikebrisy

In fact, the invitation pretty much goes to anyone who's keen to share their experience or a stock pitch.

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mikebrisy
8 months ago

I'm honoured to be invited, of course. But certainly do not hold myself up as any expert. More an enthusiastic analyst. I could perhaps do a case study on how I value a business I know well, providing some insights into my approach to scenario construction.

While I am happy to do this, it is a busy time at the moment with reporting season and on top of that I am in the middle of teaching a university MBA course, which will then have its mountain of assessments to be cleared. Short answer, yes, happy to - but it wont be much before late November / early December.

You can see my SM portfolio and RL portfolio, so I could take requests. (Prefer not $CSL, $MQG, as i don't model these properly).

I am about to do a major review post-results of $PNV, so I could offer that? (as I know some of us are interested in it, and it might help riding the rollercoaster!)

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Strawman
8 months ago

That's great @mikebrisy

I'll reach out later in the year to lock something in. Looking forward to it!

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Slew
2 years ago

The art of Execution

Lee Freeman-Shor

Highly recommend this book, it is a very easy read with simple concepts but it has a powerful message on how to hang on to your winners and when to sell. It helps you identify what style of investor you are and the bias's you hold.

I know the book has been mentioned before, but it is worth another post.

If you struggle with the "when to sell" question this may help clarify your process.

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