Value investing - Sell or Hold

  • Hi,

     

    I was pondering the concepts of selling a value stock or holding it for longer. I understand that Ben Graham had a strict rule of selling after a 50% increase or after two years, whichever came first.

     

    A stock brought at value brings the 50% gain, but if this stock is in a strong company with good prospects for the future, should it still be sold? At this point, do you make a decision to strictly adhere to Ben Grahams teachings or evolve to be more like Buffett in buying a good company at discount and holding it for a long time?

     

    If the company in question was a 'cigar butt' then selling after its gain seems more obvious than for a value stock in a good company.

     

    Thoughts / comments
    Post edited by Unknown User at 1999-11-30 00:00:00
  • 8 Comments sorted by
  • GraemeGraeme
    Posts: 367
    Yeah, this is always a fun question. 

     

    For me what I do is I break up my holdings into different categories. For example, I have holdings that I bought at a good (not great) but good price, but they pay me dividends, and if they keep acting as they have for years, they should be increasing my dividends every year. I get a bit of return on the stock price increase, but a great return over many years with the dividends reinvesting. So my sell thesis on these guys is pretty firm: as in, I wont easily do it. 

     

    But then I have holdings that I would consider a deep value: selling at a deep discount to book value, or below NCAV or in a really beat up industry. These are the shares that I have a target price for: as in, I will sell when they hit that specific price. There is not a whole lot that would change my mind and make me hold on to it longer. And sometimes that target price is 50% above my purchase, 100% or even more. 

     

    So you need to judge for yourself whether the business you bought shares in is now fairly priced at it's 50% gain or if it still has room to go. 
  • G.raham came up with the 50% or two years towards the end of his life, in that interview that is bandied around the internet some.  I am not at all sure that he practiced that in the Graham Newman closed end fund he ran.  In one case, he did not, and that was GEICO which they bought half of in 1947 or 1948.  They ended up having to distribute the shares to the shareholders of the fund, and it increased 54,000 per cent or something like that.  Many became multimillionaires, quite a feat back then.

    Walter Schloss, who died the past weekend at age 95, talked about selling.  According to him that was the hardest part of this business, trying to figure out when to sell.  He didn't like paying short term income tax rates and tried to hold stocks for a number of years.  He commented ruefully several times about buying at $30, selling at $50 and watching the stock go to $200, etc.  He recommended a new company to Graham that had wonderful prospects.  Graham turned it down, saying it wasn't their kind of deal.  It was Xerox, of course, but Schloss said Graham would have sold it at a double anyway and missed out on the big increase.

     

    If it was easy, everybody would do it!
  • JaeJunJaeJun
    Posts: 2,517
    selling is defnitely harder than buying.

    One of my weak points as well. If I had a partner, I'd find someone who was better at selling than buying. It would be a great combination.

     

    But to sell, you would have to re value a company regularly.

    If there isn't much upside to intrinsic value, then I'm willing to sell at 10% below intrinsic value rather than hanging on.

    Companies like GRVY, I am happy to hold even if I'm up 100%.
  • I am fairly new to value investing so I find it good to know other have had similar thoughts to my own!
  • BugManBugMan
    Posts: 5
    I'm fairly new to this, and I, too, see selling as the hardest part.

     

    One thing i've thought of that makes it easier is compare your current holdings to what else is out there. If are holding onto a good company, and you figure it has the potential to go up 12% per year, but you see other companies out there that have the potential to go up 25% per year, then sell your current stock and buy the other ones. It's not that the old company isn't good -- it is -- it's just that there are better deals out there.
  • nellnell
    Posts: 134
    Some reasons to sell..

     

    1. intrinsic value < price -> no margin of safety

    2. business quality goes south, management issues etc.

    3. better opportunity

     

    One good reason to buy more is when market tanks but intrinsic value of your specific company keeps growing..

     

    Best wishes,

    Nell
  • JaeJunJaeJun
    Posts: 2,517
    do any of you sell after a big fast run up even though it is below intrinsic value?
  • matthewmatthew
    Posts: 22
    Yes, I did this on Aeropostale.  Approximately a 32% gain I got on that bad boy.

    Reasons I sold, it had trouble getting past $21-$22, and then Barclay's raised there price target to $25 so more investors bought and price went up a bit.  I took this chance and sold it, and it has now went back down after today -5%.  Keep in mind that I sold it early basically because my intrinsic value was around $23 and I figured i'd rather sell now than risk more just for a small additional gain.

     

    If I had not sold it then I would have been stopped out as during the price consilidation period I put in a stop loss @ $21 

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