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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1088)	1/1/1999 4:59:00 PM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

When to sell --???> A reader writes: > Hello, > Recently, by chance, I bought the book "The Intelligent Investor", > by B. Graham. > Enjoyed it very much. I think his value approach to investing makes > a > lot of sense. However, I'd appreciate it if you could answer the following > question: > > What is his criterion for selling a stock? Is it when the price/book > ratio reaches some threshold? Or is it when your return has reached > some preset percentage? Or ....? I do not seem to find it anywhere in > the book. > > > Regards, You have asked one of the two toughest questions in investing: When to sell? The other, of course, is: When to buy? Yours may be the more important of the two, though. Graham pointed out that erroneous advice to buy, or to not sell, could at most be 100% wrong. Whereas, erroneous advice to sell, or not to buy, can theoretically be mistaken without limit on the upside (hence the danger of selling short). However, in theory at least, there must be some point at which a stock is overvalued, or at least fairly valued, and therefore should be sold. (See, for example, the most recent edition of GADR, under "Tempus Pecunia Est", at: Message 6978195 ) A useful rule of thumb is to buy when a stock is 30% undervalued, and sell if and when it is 30% overvalued -- according to whatever was the valuation criterion used in making the purchase in the first place. Notwithstanding the above, Buffett has a number of so-called "permanent holdings" in his portfolio, like Coke, Gillette, and The Washington Post, among others. As he puts it, there are only so many great companies. He can only find about one a year at a favorable price. Having found such a bargain, he's in no hurry to let it go. And, as Marty Whitman of Third Avenue Value Fund points out, if your capital gains tax would be 28% on the sale of a stock, your next purchase would have to gain 28% just to break even. That's not an easy threshold to surmount. Finally, there's a saying, stated ruefully, by certain old time value investors: "I'll never sell another stock!" You can draw your own conclusions about why they say this. porc --'''':>