Author Topic: When to sell a speculative stock?  (Read 5020 times)

wileyish

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When to sell a speculative stock?
« on: May 23, 2015, 01:36:43 PM »
First, don’t panic. I’m prudent with 98% of my investments and max out the 457, 403b, IRA, plus vanilla after-tax index funds with the little bit leftover. But, awhile ago I started playing around with a few speculative stocks, just as an experiment (and an understanding that I may lose the money). I bought into three companies; of those my investments grew (and shrunk) by 289%, 93%, and (33%). When I bought I did not have an exit strategy.

I plan on holding the biggest gainer and the biggest loser. The middle guy (CRUS) I’m thinking of selling 50% to recoup most of my initial investment. I read somewhere that investors shouldn’t sell unless there was a better buying opportunity elsewhere or if you have reason to believe the stock is a risk. Apple accounted for 78% of CRUS’ revenue last quarter. This seems risky to me. If I do sell, I will just scootch the profits over to the index funds accounts.

We’re talking about a small amount of cash here (selling 50% would net ~$2,000). Conceptually though, does it make sense to sell when the stock has nearly doubled and the biggest customer is a behemoth company that would tank your investment if they went with another supplier? It seems like recouping the initial investment makes sense at this point. If the stock goes up or down or sideways afterwards I could be indifferent about the fluctuations. But paying taxes on the sale on income I’ve already paid taxes on doesn’t seem wise either. Argh, how to do you seasoned experts decide when to sell?

forummm

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Re: When to sell a speculative stock?
« Reply #1 on: May 23, 2015, 01:41:01 PM »
If you're already speculating, why jump to logic? :)

Why did you pick those stocks in the first place? Do you still believe in them? Or is the change in value the sole metric you're using as to whether a decision should be made to do something with them?

wileyish

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Re: When to sell a speculative stock?
« Reply #2 on: May 23, 2015, 02:05:55 PM »
If you're already speculating, why jump to logic? :)

Ha! Good point. I was just throwing darts, though aiming for the bullseye.

Is there not a metric of deciding when to cash out? Cirrus is a solid company and I still believe in them, but their heavy reliance on Apple is a concern.

forummm

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Re: When to sell a speculative stock?
« Reply #3 on: May 23, 2015, 02:17:50 PM »
People who speculate on individual stocks have all kinds of metrics about when to get in and get out. The only one I buy is buy and hold. If you want some system you'll probably find more ardent trading enthusiasts on another website. In general, studies find that people who trade the least do the best.

Rubic

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Re: When to sell a speculative stock?
« Reply #4 on: May 23, 2015, 02:29:45 PM »
But paying taxes on the sale on income I’ve already paid taxes on doesn’t seem wise either. Argh, how to do you seasoned experts decide when to sell?

Capital gains taxes shouldn't guide this investment decision, but let's be honest here -- this isn't an investment.  It's a fun joyride on your dime.  There's nothing wrong with that, and you've possibly got slightly better odds than playing the lottery.

If I couldn't determine a range of values for the net worth of a company, I couldn't consider buying its stock.  It just doesn't make any sense to me.  Since you're ahead of the game, chalk it up to luck and pay your capital gains tax.  (It's a high quality problem to have.)

forummm

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Re: When to sell a speculative stock?
« Reply #5 on: May 23, 2015, 02:52:10 PM »
Depending on when you bought, and counting transaction costs, and the capital gains taxes you'll be paying, you may or may not have been better off holding the index (which you would continue to hold and wouldn't have to pay taxes on yet or perhaps ever). But consider it a cheap lesson in your investing going forward.

mrpercentage

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Re: When to sell a speculative stock?
« Reply #6 on: May 23, 2015, 06:39:48 PM »
For me the exit strategy for speculative is "made enough money to feel good". If you would sell it and feel good-- do so. Sure it may go further but you didn't want to keep this car you wanted to flip it to someone who would appreciate the crappy gas milage right? And you did get a joy ride right? Was it your moneys worth... Speculation is about feel.. numbers is science.

Just my thoughts. Great job.

forummm

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Re: When to sell a speculative stock?
« Reply #7 on: May 23, 2015, 07:32:20 PM »
For me the exit strategy for speculative is "made enough money to feel good". If you would sell it and feel good-- do so. Sure it may go further but you didn't want to keep this car you wanted to flip it to someone who would appreciate the crappy gas milage right? And you did get a joy ride right? Was it your moneys worth... Speculation is about feel.. numbers is science.

Just my thoughts. Great job.

How do you know when you've "made enough money to feel good"? It sounds on the other thread like you're feeling pretty good about Apple and Disney. Why haven't you sold them yet?

wileyish

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Re: When to sell a speculative stock?
« Reply #8 on: May 23, 2015, 07:39:29 PM »
If you want some system you'll probably find more ardent trading enthusiasts on another website.

On the contrary, most people on this site are looking for an edge, trying to accelerate time to FI. That may be through stocks, real estate, or side gigs. Consider ARS, a much respected moderator in this community. Most of his investments appear to be real estate in Las Vegas, one of the hardest hit cities during the last U.S. housing bubble. He risks big losses if he needs to access the equity during the next bust cycle. Meanwhile, his “system” is totally kicking ass.

I’m not looking for “get rich quick” advice, but rather some guidance from more seasoned investors on when it is appropriate to recover gains. “Investor Alley” seemed like a great place to seek advice. If everyone just said “invest in index funds” this would be a very boring thread. :P

mrpercentage

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Re: When to sell a speculative stock?
« Reply #9 on: May 23, 2015, 07:46:06 PM »
Different thread. Disney and apple are not speculative. My sharpie ratio is 2.25. That includes Escalade Sports though.

Speculative stocks are subjective not objective. You are essentially gambling with the odds in your favor. There is no exact answer. Holding on to something for long term is not speculating. Only you can gage it. I thought a 4% gain in 2 days was great so I sold one. For some it might be 100% or if they think it is a ten bagger more. Stick to the plan whatever it was going in. Quick profit or ten bag or whatever and have plan for stopping you losses. With my investments I will ride it to zero with speculation maybe down 50% I will cut it. That's me. That's not an official success building rule, it's just what I do.
« Last Edit: May 23, 2015, 07:47:57 PM by mrpercentage »

dungoofed

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Re: When to sell a speculative stock?
« Reply #10 on: May 24, 2015, 01:33:46 AM »
Better late than never, now is as good a time as any to do some fundamental analysis on the three companies. Find out what they're about, how they make money, threats etc. Then if everything still looks good you don't have to sell.


forummm

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Re: When to sell a speculative stock?
« Reply #11 on: May 24, 2015, 07:25:50 AM »
If you want some system you'll probably find more ardent trading enthusiasts on another website.

On the contrary, most people on this site are looking for an edge, trying to accelerate time to FI. That may be through stocks, real estate, or side gigs. Consider ARS, a much respected moderator in this community. Most of his investments appear to be real estate in Las Vegas, one of the hardest hit cities during the last U.S. housing bubble. He risks big losses if he needs to access the equity during the next bust cycle. Meanwhile, his “system” is totally kicking ass.

I’m not looking for “get rich quick” advice, but rather some guidance from more seasoned investors on when it is appropriate to recover gains. “Investor Alley” seemed like a great place to seek advice. If everyone just said “invest in index funds” this would be a very boring thread. :P

So you've mentioned getting another job, spending less money, and real estate. I agree that those are other ways discussed with favor a lot of this forum. But they are not speculative stocks. Only a few people here advocate for stock picking. And basically everyone else says that's a bad idea. See some of the threads on Investor Alley right now. Maybe that's boring for you. I think many of us are OK with boring but rich. For speculative stock picking, other websites may have more proponents.

electriceagle

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Re: When to sell a speculative stock?
« Reply #12 on: May 24, 2015, 07:40:45 AM »
Some people maintain a portion of their asset allocation for speculative investing. Typically, this is 1-3% of their overall wealth.

If your investments are successful, their value should go above what is permitted by their allocation. Sell them then.

Roland of Gilead

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Re: When to sell a speculative stock?
« Reply #13 on: May 24, 2015, 07:52:03 AM »
In my opinion there is almost as much risk investing in individual real estate as in a mix of individual stocks.  I have known people who have lost money in individual stocks and I have known people who have lost their shirt in bad real estate (having a $60,000 loss in a $150,000 property in one example).   This forum accepts real estate investing, even promotes it but really is negative on individual stock investing.

I do about 95% index investing, 5% stock picking, and 0% individual real estate.  It works for me and I have acceptable returns and risk.

In answer to the OP's question, I usually sell enough of a speculative stock to cover my initial investment in full and keep the rest in the stock if I like the future risk/reward.   This gives me some funds to buy on a pullback or expand my investments into other stocks.   I have been known to sell a portion and write calls against the rest to get funds.  I generally only buy individual stocks with fortress type balance sheets and silly PE ratios, like Apple back when it was $450 pre split, Gilead last summer when it fell to $65.  CRUS looks ok, but not *cheap* right now.

forummm

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Re: When to sell a speculative stock?
« Reply #14 on: May 24, 2015, 08:44:46 AM »
In my opinion there is almost as much risk investing in individual real estate as in a mix of individual stocks.  I have known people who have lost money in individual stocks and I have known people who have lost their shirt in bad real estate (having a $60,000 loss in a $150,000 property in one example).   This forum accepts real estate investing, even promotes it but really is negative on individual stock investing.

Oh sure, you can lose money on real estate. I haven't spent much time on the real estate section, but I think they are generally in the market for low-risk rentals to single families or duplexes. I think comparing rentals to stock picks is a very different game. With stocks, you know that this super-cheap index is available and that most people don't beat it, so it should be the default. If you have evidence that you really, really know what you're doing, you might do just a bit better (at some risk of doing worse).

Real estate is more of a business than passive investing. I think the bar is higher for the kinds of people who should get into it. I personally want nothing to do with it.