When do you sell that stock you bought before you started indexing?

[letired]

Before I learned about Vanguard and index investing, I bought a couple shares of various stocks, with no real plan beyond 'I'M INVESTING LIKE AN ADULT' and 'BUY AND HOLD'. Now that I'm (theoretically) older and wiser, I'm thinking about what to do with them. I'm content to let most of them ride, as my income has increased a ton and taxes blah blah blah. However, I bought a few shares of a stock that had tanked, and it has since split, and recently spiked again, giving me R I D I C U L O U S  returns (on paper). Even at it's current elevated state, it's still less than 3% of my total invested. At it's current elevated state, it's close to 3% of my total invested!

So my question is really around what criteria do people use to unload this sort of thing? Some sort of rebalancing criteria? Certain percentage return? Percentage of portfolio? Just dump it whenever? Wait till my income goes back down? Something else I'm not considering?

[onlykelsey]

I basically sold mine when the paperwork of getting reports and filing taxes became too much (because it wasn't held through the same house as my index funds).  Not the most strategic decision.   If it's so small, I wouldn't worry about waiting until your income goes back down (which will hopefully not be before you retire...).  Assuming your investment strategy doesn't feature any individual stocks, I'd get rid of it during your next quarterly/yearly whatever rebalancing.

[snappytom]

I am methodically selling individual stocks and consolidating at Vanguard. 
I too have a couple that tanked that I still hold.  Going to hold on to them for loss harvesting in the future or let my heirs get them at cost.  We are not talking about a lot of money in the big picture and seeing them in the old portfolio reminds me not to do stupid shit again.

[Telecaster]

So my question is really around what criteria do people use to unload this sort of thing? Some sort of rebalancing criteria? Certain percentage return? Percentage of portfolio? Just dump it whenever? Wait till my income goes back down? Something else I'm not considering?

When you conclude the money is better deployed elsewhere.   

[acroy]

1) Sell it, take the 15% cap gains hit, and roll it into indexing.
2) Ignore it. it's 3% of the portfolio.

Flip a nickle :)

[Spork]

We keep < 10% of our investments in individual stocks.  We didn't really plan it that way, but like you: that's how we started before we really dove into index funds.  The thing is -- those stocks have done really well and we've "bought and held" many, many years ago.  For those reasons, and the fact that having a handful of stocks keeps us interested/in the game, we've never gotten rid of them.

That said -- there have been 3 or 4 times we've also gotten ridiculous gains (2x, 3x, on up).  On those times, we have either sold that entire stock to lock the gains or (minimally) sold what we have into it.  In other words: if that stock were to go to nothing, we still had our money out of it.

[MoonLiteNite]

I personally kept mine and started to swing trade with it.

If you are not wanting to do that and you want to keep your risk low, just sell and buy index funds with it.

[letired]

Thanks everyone! It really helps me to think through this stuff when I hear other's thought processes.

Since most of the stock buys have been bumbling along (and are for such small amounts of money (which I feel like a chump for saying, because it really really isn't in the real world)), I don't see any point in touching them. For the stock with currently stupid high gains, I'm still a bit torn between letting it ride and locking those gains in. For a completely superficial reason, I'm hovering close to a nice round number and locking those gains into something more stable (index fund) would feel pretty good.

[Grizzly Dad]

There's nothing magical about index funds; they are just good ways to get diversity at low cost. There's no reason you even have to get rid of the stocks you bought previously. If they are decent companies just hold them forever. If you never trade, a bunch of stock you hold yourself is actually cheaper than an index fund. Only really a problem if it leaves you exposed too much to one company. 3% is getting a bit high for my taste but it's not crazy.

[letired]

There's nothing magical about index funds; they are just good ways to get diversity at low cost. There's no reason you even have to get rid of the stocks you bought previously. If they are decent companies just hold them forever. If you never trade, a bunch of stock you hold yourself is actually cheaper than an index fund. Only really a problem if it leaves you exposed too much to one company. 3% is getting a bit high for my taste but it's not crazy.

For most of the stuff I bought in that 'era', you're absolutely right. I believe those stocks will keep on trucking along, making mostly reasonable if not spectacular returns. Most of the things I bought are large established companies that aren't going anywhere. For the stock I'm angsting over, it is for a much newer (tech-oriented) company with much higher volatility than any other individual stock I own and because it's a newer company, I have much lower confidence in it's longevity. Maybe that's the answer to my angst!

[frugal_c]

I agree with grizzly dad.   No need to rush it.  I would sell it when it hits the high end of fair value.  If you have been holding for a long time you should have a good sense of what that is.

[letired]

I agree with grizzly dad.   No need to rush it.  I would sell it when it hits the high end of fair value.  If you have been holding for a long time you should have a good sense of what that is.

It spiked this week, and is very close to it's all-time high, which is what made me want to figure out what should be my criteria for selling!

[Paul der Krake]

If you donate to charitable causes, gifting appreciated securities will result in a tax deduction for the full appreciated amount and bypass the capital gains tax. Not all charities accept such gifts, but large ones tend to.

Beware that your brain may trick you into donating more than you normally would.

[letired]

If you donate to charitable causes, gifting appreciated securities will result in a tax deduction for the full appreciated amount and bypass the capital gains tax. Not all charities accept such gifts, but large ones tend to.

Beware that your brain may trick you into donating more than you normally would.

Interesting! I hadn't thought of that at all! I do have 'make charitable giving plan' on my 2017 list. I'll keep in mind the brain tricks!

[frugal_c]

I agree with grizzly dad.   No need to rush it.  I would sell it when it hits the high end of fair value.  If you have been holding for a long time you should have a good sense of what that is.

It spiked this week, and is very close to it's all-time high, which is what made me want to figure out what should be my criteria for selling!

I don't think it really matters that it's at an all-time high per se.  It is really about what you think it is worth.   I would look at it like, if you didn't already own it would you be willing to pay this sort of price?  If so, continue to hold it, if not I would sell it all, tax consequences be damned.  Better to take a partial tax hit than lose your gains if they seem artificial.

[K-ice]

I haven't sold mine. It is still volatile but doing well over time.

At one point there was a merger/stock split & we ended up getting 3X our initial investment out cash.
So I'm just letting the rest sit.

However, I'm not buying any more.

I figure as I invest more it will fall from 100% of my investing to less than 10% so who cares.

It's current at about 40%.

I don't think what I am doing is good financial advice but I'm just sharing.

[Seppia]

Just keep the individual stocks*.
They cost you zero to hold, and if you keep adding to indexes you will eventually render them irrelevant.

*unless it's some sort of semi scam like tesla, in that case sell asap.

. Only really a problem if it leaves you exposed too much to one company. 3% is getting a bit high for my taste but it's not crazy.

Uh?
Apple is 2.5% of vtsax, and nestle is 3% of Vanguard developed Europe etf.
I really don't see 3% as too high.

[scottish]

I agree - keep holding the individual stocks.    We have over $100K in unrealized capital gains in our cash accounts from pre-indexing days.

I'd love to switch these to indexing, but I'm hesitant to fork out around $30K to the government.  The payback time looks like 10 to 15 years.

Once I stop working the tax rate will go down down down and we can reassess this decision.