TO SELL OR NOT?

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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deaddog
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Post by deaddog »

Maybe I’m beating this dog to death but to me what is lacking in a Buy and Hold strategy is some kind of exit strategy.

One of the reasons I don’t have a financial Advisor is because I could not find one that would address the question of when we would get out of a non-performing investment.

There were all sorts of criteria given as to when we should buy an investment but none for when to sell. When asked how to manage risk the usual answer was diversification.

Most have some criteria for buying an investment. Very few have any criteria for selling either on the upside or the downside.

Here are the reasons for not selling.
Don't panic.
Market timing doesn’t work.

you might be sorry you sold if you miss those few important whopper days in the market that make up the lions share of a recovery.

And then if the markets recovered at that point, I would have looked awful dumb.

If you are getting out now because things are bad, the only way you can get back in, at lower prices, is if you are willing to buy back when things are a lot worse. Why else would prices be lower than they are today, if things were not worse.(Snip). Therefore, they are destined to buy back at higher prices. Plain and simple. I would suspect that you have lost too much money already, to lose more in this way, but that is entirely up to you.
but if you have greater than 10 years to think about it then it is not a pressing concern.
A buy and holder who has a low cost base doesn't want to take the massive tax hit,

I'm not ever going to pay taxes on it. It's a hold forever while I spend the dividend.
I am too far into the decline to even consider crystallizing equity losses. I am of the opinion the odds of gains (a recovery) going forward are far greater than the odds of more losses. I will simply tap into the FI component of my withdrawal needs until an equity recovery takes place.
The problem I have is I really like my stocks

I constantly have to remind myself of the value I believe is in my stock holdings

Warren Buffet holds forever.

the world economy will come back eventually and stocks will rise again

Equities only represents a portion of my portfolio. That's why I diversify.
Now the way I understand it a Buy and Hold investor might sell at a loss to harvest a tax loss.

Are there any other reasons why else one might sell?
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Post by mpav »

Selling is the hardest part, so I focus on a few stocks in each of my portfolios (5-10) max.

Currently my CAD portfolio has 7 names, so to buy something new it would have to have a better growth (in my view) than a current holding.

So right now I see the CP is cheap, good value, but I would have to sell something in my portfolio to add it (maybe CNR, RCI?) In this case, even though I like it I back out because CNR is still a better railroad...its expected growth doesnt exceed my other holdings

I also like to sell if if the expected dividend hikes don't materialize, as that is a good indication of future prospects.
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Norbert Schlenker
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Post by Norbert Schlenker »

deaddog wrote:I could not find one that would address the question of when we would get out of a non-performing investment.
Suppose I'm satisfied that a broadly diversified portfolio is highly correlated to overall economic growth over long periods. Then "getting out" would indicate a lack of faith in long term economic growth. I'm not sure what the solution to that would be. Actually getting out, i.e. emigration, springs to mind.

Would you consider that option?
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deaddog
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Post by deaddog »

Norbert Schlenker wrote:
deaddog wrote:I could not find one that would address the question of when we would get out of a non-performing investment.
Suppose I'm satisfied that a broadly diversified portfolio is highly correlated to overall economic growth over long periods. Then "getting out" would indicate a lack of faith in long term economic growth. I'm not sure what the solution to that would be. Actually getting out, i.e. emigration, springs to mind.

Would you consider that option?
My question would be what if we are wrong and at what point will we admit being wrong and what will we do about it.

All I want for my plan is a disaster scenario. There is risk in the market. How are we prepared to handle that risk. Taking the past into account we know the market can crash. History has taught us the signs. Lets set -up some critetia where we move to the sidelines. Maybe we buy put options.

I personally use a 30 week moving average as a warning that an investment may be in trouble.
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Norbert Schlenker
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Post by Norbert Schlenker »

deaddog wrote:There is risk in the market. How are we prepared to handle that risk.
We have a fundamental disagreement. Unless the market is going to zero, a lower price today means very little. Few investors have a time horizon - perhaps I should say "should have a time horizon" - of today or tomorrow or next week. Indeed, if an asset will not go to zero in the future, a lower price today is a benefit, not a drawback.

If it is going to zero, then sure you should get out. If you think the economy is going to zero - and like it or not, the market is related to the economy - then you should get out. Physically. Where are you planning to go?
I personally use a 30 week moving average as a warning that an investment may be in trouble.
Great. I'm glad you've found something that you believe works. I don't believe it myself.
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Post by deaddog »

Norbert Schlenker wrote: We have a fundamental disagreement. Unless the market is going to zero, a lower price today means very little. Few investors have a time horizon - perhaps I should say "should have a time horizon" - of today or tomorrow or next week. Indeed, if an asset will not go to zero in the future, a lower price today is a benefit, not a drawback.

If it is going to zero, then sure you should get out. If you think the economy is going to zero - and like it or not, the market is related to the economy - then you should get out. Physically. Where are you planning to go?
I personally use a 30 week moving average as a warning that an investment may be in trouble.
Great. I'm glad you've found something that you believe works. I don't believe it myself.
Why does the market have to go to Zero? People buy investments because they think they will go up. If they think they'll go down why not sell and buy back cheaper.

Is there a difference between buying a stock and having it go down and selling a stock and having it go up. If you sell it at least you have your capital.

Moving Averages are just a tool. If you don't believe they work then I'm sure they won't work for you. Hope what you're doing is working for you.

Where will i go: Any of the warm sunny tax havens might be a good place. At least I have the cash to get there. 8)
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Post by George L »

Mpav wrote
Many discount brokerages don't sell 3rd party GIC's, TD is likely one of them.
Not true. You just have to call TDWH. Today I bought 1 year ManuLife 4% GIC from TDWH. However, it is true that you can't buy GIC online from TD WebBroker. As far as I know only CIBC Investor's Edge and RBCDI allow you to do that.
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Post by Blonde Bond »

Hi mpav - quick question for you:
mpav wrote:I also like to sell if the expected dividend hikes don't materialize, as that is a good indication of future prospects.
Even in the current environment, where some good companies may not raise their dividend for the next few quarters?
Does that include financials?
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Post by Bylo Selhi »

BRIAN5000 wrote:waiting for password to come in the mail now.
No need to wait. Phone them. Press 1, then 4 on their IVR. Tell the agent you've opened an account and want online access. After a round of "twenty questions" they'll give you a temporary password (and your new Client Card Number if you don't already have one.)
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Post by adrian2 »

deaddog wrote:Maybe I’m beating this dog to death
Considering your chosen alias... :rofl:
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Post by OptsyEagle »

Unless the market is going to zero, a lower price today means very little. Few investors have a time horizon - perhaps I should say "should have a time horizon" - of today or tomorrow or next week. Indeed, if an asset will not go to zero in the future, a lower price today is a benefit, not a drawback.
You nailed it on that one, Norbert.
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Post by deaddog »

adrian2 wrote:
deaddog wrote:Maybe I’m beating this dog to death
Considering your chosen alias... :rofl:
Right on adrian.

I'll shut up for a while. :D
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Post by mpav »

Blonde Bond wrote:Hi mpav - quick question for you:
mpav wrote:I also like to sell if the expected dividend hikes don't materialize, as that is a good indication of future prospects.
Even in the current environment, where some good companies may not raise their dividend for the next few quarters?
Does that include financials?
This is a bit of an odd scenario, so some of my financials missed or will miss their hike (PWF didn't though!).

So I may break a rule and not sell out here at it is clearly a bad move.

Normally in a more sane market you don't get cuts (unless something material has happened), so I track expected growth rates of dividends. Normally the companies I follow, have a standard date hikes come into effect and it can be really telling how they approach the dividend....if the growth rates are pulling back, or not as strong I may subsitiute with another holding.

My ideal scenario is to get a 10% yield in 10 years.
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Post by BRIAN5000 »

Bylo Selhi wrote:
BRIAN5000 wrote:waiting for password to come in the mail now.
No need to wait. Phone them. Press 1, then 4 on their IVR. Tell the agent you've opened an account and want online access. After a round of "twenty questions" they'll give you a temporary password (and your new Client Card Number if you don't already have one.)
You know those ones I owe you, just add another on to it, thanks.
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Post by mudLark »

Norbert Schlenker wrote:Unless the market is going to zero, a lower price today means very little.
Unless prices have been consistently going lower for a while and a trend is developing.

Danielle Park believes it is quite possible the TSX may fall through 5678 before this cyclical bear phase ends. If she's correct, and she often is, selling today could save an investor a potential 25% loss. That's 25% lost going down, and a 33% gain needed to recover to today's level.

Norbert (methinks tongue-in-cheek) alludes to the need for "faith" in "long term economic growth". He also tells us there is nowhere to hide. In the global market-place we must all apparently sink or swim together.

Whenever I fly I try to get a seat at the rear of the plane. Once on board one of the first things I do is locate the nearest emergency exit. I then imagine coughing and fighting my way to this portal in the dark, smoke-filled, bedlam that is sometimes the unexpected terminus of a scheduled flight. Performing this mental exercise is consistent with my general "hope for the best but plan for the worst" mien. I have absolute "faith" in the physics of flight and believe that, generally speaking, flying is safe, but I also acknowledge that sometimes it ends in tragedy.

I treat investing no differently than I do flying. I try to position myself to survive, and I plan my way out if I have survived. I recognize that sometimes I won't survive (there is nowhere to hide) ... in which case no amount of planning will save me from oblivion. I accept this latter as an acceptable risk because walking and/or swimming, instead of flying (or labouring instead of investing), is an unacceptably onerous method of getting to Hawaii.

An investor ten or less years from retirement, who does not have some sort of sell discipline, is asking for trouble.
deaddog wrote:I'll shut up for a while. :D
If you must, however, ISTM your points make a lot of sense.
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Post by nobleea »

mudLark wrote:Whenever I fly I try to get a seat at the rear of the plane. Once on board one of the first things I do is locate the nearest emergency exit. I then imagine coughing and fighting my way to this portal in the dark, smoke-filled, bedlam that is sometimes the unexpected terminus of a scheduled flight. Performing this mental exercise is consistent with my general "hope for the best but plan for the worst" mien. I have absolute "faith" in the physics of flight and believe that, generally speaking, flying is safe, but I also acknowledge that sometimes it ends in tragedy.
Apparently the front of the plane is safer.
Commissioned by the Civil Aviation Authority and carried out by Greenwich University, the study found that the seats with the best survival rate were in the emergency exit row and the row in front or behind it. Between two and five rows from the exit, passengers still have a better than even chance of escaping in a fire but “the difference between surviving and perishing is greatly reduced”.

The most dangerous seats are those six or more rows from an exit. The study says: “Here, the chances of perishing far outweigh those of surviving.” Passengers sitting towards the front of the aircraft had a 65 per cent chance of escaping a fire, while the survival rate for those at the rear was 53 per cent. The survival rate in aisle seats was 64 per cent, compared with 58 per cent for other passengers.
http://www.timesonline.co.uk/tol/news/u ... 214998.ece
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Post by BRIAN5000 »

Are there any other reasons why else one might sell?
I'll shut up for a while.
I think this is a good question and the more idea's the better.

Buy and Hold but try to define some sort of exit point that will save you from large loss's.
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Post by deaddog »

nobleea wrote:
Apparently the front of the plane is safer.
You never hear of a plane backing into a mountain. :D
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Post by Shakespeare »

You never hear of a plane backing into a mountain
The back of a swept-wing jet is aft of the fuel tanks. In the Sioux City crash, people from the front of the aircraft survived. People in the back were inside the fireball.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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Post by Bylo Selhi »

The question of which is safer, front or back, is about as contentious as which way the toilet paper should unroll. There's also the aisle vs. window debate, as well as proximity to emergency exits.

For more, just ask my friend. [Worth a click even if you don't much care about airplane safety.]
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Post by Norbert Schlenker »

mudLark wrote:
Norbert Schlenker wrote:Unless the market is going to zero, a lower price today means very little.
Unless prices have been consistently going lower for a while and a trend is developing.
A "trend" is irrelevant if it's not going to zero. Pick an asset, any asset, that will be worth some positive sum in ten years. Why would I care what the "trend" is? Why would I be more worried if the price were lower today than it was yesterday? I should be less worried.
Norbert (methinks tongue-in-cheek) alludes to the need for "faith" in "long term economic growth". He also tells us there is nowhere to hide. In the global market-place we must all apparently sink or swim together.
It's not tongue in cheek. It's a deadly serious argument.
An investor ten or less years from retirement, who does not have some sort of sell discipline, is asking for trouble.
Again, I disagree. You should have an appropriate asset mix. If part of that translates into "more conservative because I'm getting closer to withdrawing", then you will certainly sell and convert funds to something less risky. That is NOT the same as "selling because it's going down".
Nothing can protect people who want to buy the Brooklyn Bridge.
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Post by deaddog »

Norbert Schlenker wrote: A "trend" is irrelevant if it's not going to zero. Pick an asset, any asset, that will be worth some positive sum in ten years. Why would I care what the "trend" is? Why would I be more worried if the price were lower today than it was yesterday? I should be less worried.
For the same reason I used to fill my tank almost daily a few months ago when gas prices were rising and why I’m running on empty now waiting for the next drop. I don’t want to pay too much for any product.

As far as an asset that will be worth some positive sum in ten years; I have a 2007 Caddy that you should be concerned how much you pay for it today.

I invest/trade/ speculate to make money. I don’t think that is unusual. How do you sell your clients to buy into a falling market?

“Let’s buy this investment. It’s going down but it will come back eventually, at least it always has in the past. If I’m wrong it won’t matter because everything will be at zero and we’ll all be in trouble.”
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Post by bubbalouie »

norbert wrote:Unless the market is going to zero, a lower price today means very little.
you've gone completely mad
"They misunderestimated me." --George W. Bush, November 6, 2000
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Post by mudLark »

Norbert Schlenker wrote:A "trend" is irrelevant if it's not going to zero.
Dividends are potential assets that are trending down (to zero in some instances). Don't you believe that to be relevant?
Norbert Schlenker wrote:Again, I disagree. You should have an appropriate asset mix. If part of that translates into "more conservative because I'm getting closer to withdrawing", then you will certainly sell and convert funds to something less risky. That is NOT the same as "selling because it's going down".
Do you believe an investor who is "withdrawing" should be depending on growth oriented investments?

:idea: Looking 3 to 5 years out, what do you believe is an appropriate asset mix for someone getting closer to withdrawing?
Norbert Schlenker wrote:...deadly serious...
I agree; mostly.

IMO we have yet to see the end of the beginning of this crisis -- perhaps some time in 2009.
Last edited by mudLark on 21 Nov 2008 17:53, edited 1 time in total.
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Norbert Schlenker
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Post by Norbert Schlenker »

deaddog wrote:
Norbert Schlenker wrote: A "trend" is irrelevant if it's not going to zero. Pick an asset, any asset, that will be worth some positive sum in ten years. Why would I care what the "trend" is? Why would I be more worried if the price were lower today than it was yesterday? I should be less worried.
For the same reason I used to fill my tank almost daily a few months ago when gas prices were rising and why I’m running on empty now waiting for the next drop. I don’t want to pay too much for any product.
You're presuming that you can identify and profit from a trend. I'm skeptical.
As far as an asset that will be worth some positive sum in ten years; I have a 2007 Caddy that you should be concerned how much you pay for it today.
Sure, but here's the thing. I could have paid $25k for it in July and now I can have it for $15k. Think carefully now. Given a choice of buying in July or November, which would make me better off in ten years? You seem to believe that the "trend" will let you buy it for $10k in February. I think it's just as likely it will be $20k then.
I invest/trade/ speculate to make money. I don’t think that is unusual. How do you sell your clients to buy into a falling market?
I tell them it's not going to zero and, if it's not going to zero, buying it for half off means they're getting a bargain.
“If I’m wrong it won’t matter because everything will be at zero and we’ll all be in trouble.”
That I'll agree with. If it all goes to zero, even you will be in trouble. You just don't realize it yet.
bubbalouie wrote:you've gone completely mad
I'll take that as a compliment.
mudLark wrote:Dividends are assets that are trending down (to zero in some instances). Don't you believe that to be relevant?
If I thought the dividend stream (or free cash flow) was going to zero, that would be relevant. Do I think that will happen economy wide? No.
Do you believe an investor who is "withdrawing" should be depending on growth oriented investments?

:idea: Looking 3 to 5 years out, what do you believe is an appropriate asset mix for someone getting closer to withdrawing?
Generally, I would recommend something pretty conservative, probably 30-40% equities. (There are exceptions depending on personal circumstances.) Such an investor would still have been hurt the last six months. It is impossible to avoid ALL risk.
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