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Strategies & Market Trends : Value Investing
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To: Madharry who wrote (78179)10/5/2025 5:32:13 PM
From: Sean Collett1 Recommendation

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Truedarkblue

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I suppose a question I ask is why let losers stand? How low should you let a loser go before its just culled from the portfolio? If you're selling winners to fund losers then perhaps the framing should be shifted to the losers themselves and when to cut them?

If one buys a stock at $15/s and has the fair value around $22.5/s which is a 50% gain but that stock drops to $10/s instead this should be an inflection point to ask "is the market wrong or am I?". $10/s now requires a 50% gain to breakeven and then a 125% gain to get to your target price. Maybe in today's market thats achievable but no sense letting bad habits form in my view.

At this inflection point if you see fundamentals still alive then you can of course add more but for me a rule I've adopted is to only average down once. Market already told me I was wrong once no need to flood more money to be told again. Otherwise at a ~33.3% decline I also follow the rule to walk away and wait for some confirmation to go back. This inflection point is where you should be asking if you're better off pouring winning money here or just holding into what's already working.

Next question is when to sell a winner and this one is harder for me. Selling a loser has become easy and I have no issue walking and/or waiting. Winners I find a safe rule has been at 50% to take my chips and walk. The issue is watching a stock go well beyond 50% and missing out on gains. Timing is a big contributor for me. If i see a fast run up +30-50% then I have no issue cutting like I did with AEO. As fast as market gives its quick to take. For the rest it's still a challenge I struggle with. For those I have let run I usually follow a 10% pullback rule and if I see a winner pullback 10% thats a good signal to start trimming or exiting depending on news or fundamental changes.

I don't know if overvaluation is a reason itself to sell, but of course its not a reason to buy more. A thought then is how much concentration does this winner have in your portfolio now? If it starts to creep into a majority holding concentration risk grows and perhaps trimming is ideal?

Just my $0.04 (adjusted for inflation).

Happy investing,

Sean
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