Speculative stock investment - when to cash in

[frugaldrummer]

Recently I did something unusual for me - I put $10k ( only 2% of my total investments) into a speculative stock, based on some specialized knowledge I have about its product. (NOT insider knowledge, just a field I know something about).  I didn’t invest more than I could afford to lose, and so far, it has almost doubled in price in a short time. Since I never really do this though, I’ll admit I didn’t have a firm end in mind. My general plan is to sell half to recoup my original investment, and let the remaining $10k ride unless I see a reason to lose confidence in their product. If it’s successful, that remaining $10k might increase up to ten fold; if it fails, I could lose all $10k but would be no worse off than when I started because I’ve recouped the original investment and didn’t tie it up for very long (about 4-6 weeks).

Does this seem like a reasonable way to think about it? I knew it was a risky investment when I made it, and am willing to cut my potential long term gains in half in exchange for recovering my initial investment. Give me your viewpoints .

[moof]

Generally asking random strangers on the internet for validation of your investment scheme is a poor one.  That said, if you keep your “Try and beat the index” sandbox to a small portion of your portfolio, then have fun and enjoy the ride.

[Feivel2000]

It is gambling. And you accepted the risks.

"Take the bet from the table and let the rest figure it out." is as okay as any other gambling strategy.

I did the same with Wirecard (my bet was only 100€...). The important thing is that you don't believe that you are some investment genie, who could win this bet again and again.

[frugaldrummer]

No I certainly don’t intend to make a habit of it.

[Roland of Gilead]

If you have that itch to try and beat the market, you could do something similar to what I have done:  Take a small amount of money and put it in a low or no cost brokerage and only "play" with that money.

I did this 2 years ago with $2,500 and it has grown to $33,000.  I have a thread about it on this forum but it doesn't get a lot of traction....mostly people are adverse to this type of thing even with the small starting amount and containment of the activity.

[DalioGold10]

If you have that itch to try and beat the market, you could do something similar to what I have done:  Take a small amount of money and put it in a low or no cost brokerage and only "play" with that money.

I did this 2 years ago with $2,500 and it has grown to $33,000.  I have a thread about it on this forum but it doesn't get a lot of traction....mostly people are adverse to this type of thing even with the small starting amount and containment of the activity.

True.
I also enjoy to play the Buffet's game with 10% of my portfolio :)

[Fishindude]

Most folks I know that trade individual stocks frequently have some type of personal investment strategy, such as:
If value increases XX% I sell and take the winnings.
If value decreases XX% I sell and cut my losses.
They keep emotion out of it and stick to a strategy.

[Roland of Gilead]

Most folks I know that trade individual stocks frequently have some type of personal investment strategy, such as:
If value increases XX% I sell and take the winnings.
If value decreases XX% I sell and cut my losses.
They keep emotion out of it and stick to a strategy.

I think applying a rule set like that is why so many of them fail.

I sell when the potential profit is not enough to offset the risk of holding.

To me it does not make sense to sell a stock just because it falls in price below a certain point without looking at the reasons behind the drop and the risk/reward ratio.

[DalioGold10]

Most folks I know that trade individual stocks frequently have some type of personal investment strategy, such as:
If value increases XX% I sell and take the winnings.
If value decreases XX% I sell and cut my losses.
They keep emotion out of it and stick to a strategy.

I think applying a rule set like that is why so many of them fail.

I sell when the potential profit is not enough to offset the risk of holding.

To me it does not make sense to sell a stock just because it falls in price below a certain point without looking at the reasons behind the drop and the risk/reward ratio.

The best rule is: If you are a value investor and you estimate the intrinsic value of the share, than when stock is above 10%-30% your valuation, sell (mark profits), if down then buy :)
Of course re-asses the intrinsic value frequently based on important changes, e.g. interest rates, company's quarterly earnings etc.

[jjandjab]

Does this seem like a reasonable way to think about it? I knew it was a risky investment when I made it, and am willing to cut my potential long term gains in half in exchange for recovering my initial investment. Give me your viewpoints .

I think very reasonable. You invested a small amount in a smart way - using your personal knowledge to create a good return.

But the other way to "play it" - assuming you think the stock still has potential - is to set a stop loss order, good until cancelled, above your original investment price. Let's say you bought at $10 and it is now $20. Why not keep it all in there to potentially further increase your gains, but set a stop loss at $12. Then you still make 20% or so and get your original money back if it falls quickly. On the flip side, if it goes to $30, then you've got a higher return and you could then increase you stop loss as it rises more, say to $15 or $20. Just a thought on an alternative method to protect your gain and possibly increase future returns.

[MustacheAndaHalf]

@frugaldrummer - Why is this investment overvalued?  Why sell?

If it's not overvalued, you might be treating your purchase price as overly significant.
https://www.investopedia.com/terms/a/anchoring.asp

[hodedofome]

What is the stock you bought?

[BicycleB]

Mostly PTF.

To earn my keep - OP, it sounds reasonable, but are you in an income bracket that pays tax on capital gains? If so, the amount you sell will be taxed. You might sell a little extra to cover the tax.