>Ask yourself if you didn't have a position would
>you be comfortable buying the security at these levels?
>If not, then you should think about selling at least
> some of your position (say perhaps 1/2).
I disagree with this approach for the following reason. There is a rather large "hold" zone in between "buy" and "sell" zones. So there is no implication that if I would not buy something, I should sell it.
For example, I buy at >15% expected annual return, sell at <6-7% expected annual return and hoooooold in between.
If I used your suggestion, I should either sell or buy when I see expected 10-13% annual return - I don't think either of these are attractive to me. Buying in the hold zone implies too much risk for too little return. Selling implies too much left on the table, commissions, taxes, costs of searching for alternative investments, etc.
Also your suggestion implies that if you buy just below X and sell immediately above X (whatever X is: PE, growth, 75%of book value, etc.) then you get very very little gain because you bought just under X and sold just over X.
Jurgis |
