Selling Strategy
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Selling Strategy
Timing is Not a Good Investment Tool
Optimal buying and selling opportunities are never dictated by time. The challenge is to invest when price-to-earnings (P/E) multiples are low and then wait for P/Es to revert to intrinsic value. We attempt to adhere to our buy/sell discipline by staying fully invested at all times, but we do take into account market conditions that may affect these decisions.
We sell stocks when their price rises above their intrinsic value. Generally, we sell stocks with relatively higher risk more quickly as they approach their intrinsic value. Conversely, when lower-risk stocks meet and begin to exceed their intrinsic value, we stagger selling slowly. If a stock disappoints us and its intrinsic value declines, we will sell it.
Taking Risk into Account
To maintain a portfolio's overall risk profile, we incrementally trim back positions as individual stocks become expensive. Paring of positions might begin at intrinsic value; we may pare back further as price levels increase beyond intrinsic value. We make sell decisions within the context of historical factors, which can help determine if a stock is likely to trade at a premium above and beyond our calculation of its intrinsic value.