The decision to sell liquid investments such as stocks and bonds is much harder than the buy decision. The reason for this is simple: human emotion. When an investor is considering purchasing a new position they aren’t psychologically wedded to the idea. Therefore, they can be open regarding the relative strengths and weaknesses of the investment.
However, when an active investor expresses a position in a security, they undoubtedly have a reason. Upon purchase, the investor is now committed to the idea. If the investment increases in value, either the investor was correct in their thesis or the investor was just lucky. Either way, the investor feels good that the investment increased and is hopeful for additional gains.
Having a specific selling strategy is paramount for success. Some value investors have price targets based on analysis, some sell only when they find better ex-ante values in other securities. The below quotes are curated to represent the selling methodologies of exceptional investors.
“If investors could predict the future direction of the market, they would certainly not choose to be value investors all the time. Indeed, when securities prices are steadily increasing, a value approach is usually a handicap; out-of-favor securities tend to rise less than the public's favorites. When the market becomes fully valued on its way to being overvalued, value investors again fare poorly because they sell too soon.”
- Seth Klarman from “Margin of Safely” Page 12
“Only sell to buy a security that is a third cheaper than the stock you currently own.”
- Benjamin Graham
“An investor should never sell out of an outstanding situation because of the possibility that an ordinary bear market may be about to occur. If the company is really a right one, the next bull market should see the stock making a new peak well above those so far attained. How is the investor to know when to buy back?
It is my observation that those who sell such stocks to wait for a more suitable time to buy back these same shares seldom attain their objective. They usually wait for a decline to be bigger than it actually turns out to be.”
-Phil Fisher
“If the stock does not give you 50% in three years, sell it - it’s most likely a value trap.”
- Benjamin Graham
“We sell in the open market when things become grossly overvalued. We are just not that good at selling when things are moderately over priced. We also sell when we make a mistake. Mostly we sell when our companies get taken over. Most of our sales are not to the market. I’ve been doing this for a long time and I’ve held securities for three years and sold them after they’ve doubled only to see them triple over the next six months. When you don’t know what you are doing, doing nothing is the best course of action.”
- Martin Whitman
“Do not try to buy at the bottom and sell at the top. That cannot be done expect by liars”
- Bernard Baruch
“Make a clear distinction when selling between 'compounders' and cigar butt stocks." Once the cigar butts get to fair value, it's time to move on, because the cigar butts are "just going to go down again."
- Christopher Brown
“Bill (Nygren) liquidates a security because his analysis was right and the market comes to recognize the value of his investment. In that situation, he unloads a stock when its price reaches 90 percent of its fair value… Bill recognizes that valuation is not a precise exercise—he simply tries to get in the right ballpark. A company’s true worth likely falls within at least a 10 percent range on either side of his single point estimate. If he is going to err, Nygren would rather sell early than wait for the stock to reach what may be an overvalued level.”
- Oakmark Literature regarding Bill Nygren
However, when an active investor expresses a position in a security, they undoubtedly have a reason. Upon purchase, the investor is now committed to the idea. If the investment increases in value, either the investor was correct in their thesis or the investor was just lucky. Either way, the investor feels good that the investment increased and is hopeful for additional gains.
Having a specific selling strategy is paramount for success. Some value investors have price targets based on analysis, some sell only when they find better ex-ante values in other securities. The below quotes are curated to represent the selling methodologies of exceptional investors.
“If investors could predict the future direction of the market, they would certainly not choose to be value investors all the time. Indeed, when securities prices are steadily increasing, a value approach is usually a handicap; out-of-favor securities tend to rise less than the public's favorites. When the market becomes fully valued on its way to being overvalued, value investors again fare poorly because they sell too soon.”
- Seth Klarman from “Margin of Safely” Page 12
“Only sell to buy a security that is a third cheaper than the stock you currently own.”
- Benjamin Graham
“An investor should never sell out of an outstanding situation because of the possibility that an ordinary bear market may be about to occur. If the company is really a right one, the next bull market should see the stock making a new peak well above those so far attained. How is the investor to know when to buy back?
It is my observation that those who sell such stocks to wait for a more suitable time to buy back these same shares seldom attain their objective. They usually wait for a decline to be bigger than it actually turns out to be.”
-Phil Fisher
“If the stock does not give you 50% in three years, sell it - it’s most likely a value trap.”
- Benjamin Graham
“We sell in the open market when things become grossly overvalued. We are just not that good at selling when things are moderately over priced. We also sell when we make a mistake. Mostly we sell when our companies get taken over. Most of our sales are not to the market. I’ve been doing this for a long time and I’ve held securities for three years and sold them after they’ve doubled only to see them triple over the next six months. When you don’t know what you are doing, doing nothing is the best course of action.”
- Martin Whitman
“Do not try to buy at the bottom and sell at the top. That cannot be done expect by liars”
- Bernard Baruch
“Make a clear distinction when selling between 'compounders' and cigar butt stocks." Once the cigar butts get to fair value, it's time to move on, because the cigar butts are "just going to go down again."
- Christopher Brown
“Bill (Nygren) liquidates a security because his analysis was right and the market comes to recognize the value of his investment. In that situation, he unloads a stock when its price reaches 90 percent of its fair value… Bill recognizes that valuation is not a precise exercise—he simply tries to get in the right ballpark. A company’s true worth likely falls within at least a 10 percent range on either side of his single point estimate. If he is going to err, Nygren would rather sell early than wait for the stock to reach what may be an overvalued level.”
- Oakmark Literature regarding Bill Nygren
