ValuePickr Forum

Managing positions: When to cut and run, when to take profits

"My portfolio is bleeding red No more cash to add to positions "
Immature investor like me have experienced some point time this situation .This is excellent piece of writing .I hope senior will add some value to this topic .This is covered in bits and pieces in several threads . But a dedicated thread is needed .

Running a race is a process and winning any race is an event . we must have sound process to mitigate the risk and one required to have sound process to cut down the loses as soon as possible . SAR SALAMAT to pAGARI HaJAAr . If head is safe than one can wore many crowns . To be i the game one must protect the capital than looking for the multi-baggers , in event of that we end in buying at Top and selling at the Bottom …

We have different biases in our head . Two dogs in the head are almost fighting everyday GREED and FEAR … and the one who win is the one to whom we feed more .We must create processes that out senior members always advocate and from time to time they told us .But sometimes I KNOW MORE always influence our decisions .
I request seniors VP’s to add some value to this thread as i may not have such a vast experience collectively this forum has . i have found a good resource which i share below

source:
https://www.fidelity.com/learning-center/trading-investing/trading/managing-positions

BUYING IS EASY and SELLNG IS DIFFICULT This is universal employing cash is easy but when to exit is the most difficult part of investing journey i have encountered . Due to this i have high Notional losses n my Portfolio . "FOOL and HIS mOney is INVITED everywhere "
some of the time tested strategies are:

  • Set a Target Price. When you buy a stock, do some research and establish a realistic target

*** Sell Before You Buy.** For every stock you add to your portfolio, sell one you already have.

  • Sell Your Stocks When the Market is Up, Not Down.( Tip: Sensex or Nifty may be not correct criteria Check the sector performance one can google sector wise performance on money control )
  • Monitor Even Your High Quality Stocks. HOW: Create Google alert , Watch the filing and quarterly results .
  • Rule 20-20 Maximum stop loss should be 20% and to the extreme maximum 20 shares in portfolio though 12-15 give you required diversification
  • YOU must have Risk Reward ratio in place and exist as soon as stock hits the stop loss position sell it unemotionally .
    *At he year end sell your most losers to adjust the TAX Effect SHort term and Long term tax gain tax is approx. 15%
    *2% rule never ever allow a stock position to lose more than 2% of the overall portfolio. If your portfolio of 10 lakhs maximum one stock lose should be 20000. One can adjust according to the the allocation .

In the little book that create wealth Pat Dorsey mentioned
image


and he concluded the chapter with the following notes

the book is copyright
image
it is available in public domains at http://csinvesting.org/wp-content/uploads/2013/07/Little-Book-That-Builds-Wealth_Dorsey.pdf

Disc : This if for education and learning purposes ,Moderator may remove the link if some issues arises

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In this connection there is compilation of thoughts by Prof Bakshi at morning star though old but worth reading and spending your time one can find this at https://morningstar.in/posts/40807/1/the-art-of-selling-stocks.aspx

Greatest collection of ideas and you have covered the basis for the question that you posted.

Greed and Fear can be managed really well with VTC or Open Orders in the system. Determine what you want, what price you want, and when you get it, define and determine when you want to get rid of it. India does not have “bracket” orders as yet and therefore a bit limited, but one can do bracket orders all day long on equity (a bit hard on F&O) and now you are truly unbiased. Works well in trading situation, whereas in Long Long Term investing, one just has to have a mental number in mind, and discipline.

KKP

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This thread is relevant for many newbies who burned their fingers in stories as skills to do valuation and decide entry price itself was tough for people like me. Ensuring timely exit when stories don’t play out as expected curtailed many times by greed only to lose more. Thank you @yourraj for starting this thread.

One strategy could be to have a basic view on technicals to decide the stop loss. I like the idea to keep the stop loss to max 20% of the stock idea and/or 2% of overall PF. Of late, I am exiting between 25% to 30% as stop loss and reducing my investment to illiquid stocks.

@kkpatel1924 thank you for your wisdom. Would you please explain how VTC and open orders work and it’s advantages vis a vis disadvantages. I didn’t understand it.

@hitesh2710 sir given much useful tips in this regard in various threads. I hope he will add his wisdom on selling decisions to this thread if time permits for him. Looking for wisdom from all top contributors on sell decisions for both winners and laggards.

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So, the way Open Orders work is as follows:

  1. Buy LTI based on the great Apple stock at 1800 (has not opened today as I type this), so assume this as the open price.
  2. Now, based on FA or TA or both analysis, you think that this Apple story has a lot of merit and you think it is going to 1895. This analysis is critical. This means that your expectation is defined well.
  3. Put a VTC (valid till cancel) order in your broker system for Rs1895, and then forget about it.
  4. In fact, I am adding this point 4 cause, I want to make a strong point for non-full-time-investors, that use your education / passion and go and do a job / business all day long.
  5. If the stock hits this level in the next x days or weeks, it will execute. Once a week or so, manage these levels, and whallla! You got a non-biased and non-emotional method of not playing around with the Greed factor in your brain.

Do the same thing with Buying. I liked DHFL (8-()) and I want to buy at Rs69, then put a VTC order based on your analysis that for your reasons, 69 is a great price. This was an extreme example of the wrong stock, but you get my point.

I am doing this for Godrej Properties since my analysis says that getting this stock at 899 would be a great price, so I have placed an order for it, and now I am not letting ‘chasing or FOMO’ take over my emotion of buying it. Do the same with stocks like Glaxo if you like the FA value you see in it at the right PE or PB or PD or SnR levels. Or I like BEL and have been buying it at the Double Bottom level + 10 rupees max. Now, I can get away from the Brokerage system, not watch the markets closely and do my day job with focus.

Hope this helps.

KKP

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Thank i never think about VTC order .thanks for sharing you thoughts and How to execute it . I think most of the prominent broker has this facility . KEPP POSTING RELUCTANLLY LOW BIDS . no one knows when that will be executed in the race among the weaker or sting hands .

I have small query will VTC is also executable on selling as well ??

One thing which i always thought that mosyt of the invester have their own model of valuations . But most of them address to the Earning BASED Valuation .Which should be avoided one must have ASSET Based Valuation .BUt HOW i am try to make some i request if some one has knowledge or has screen sheet please share with VP’s . WHY THIS should be the VALUATION METHOD … This is because earnings may swing and has various variable in this regards e.g

  • cost of Raw material
  • geographic factors
  • environmental issues
  • Changes in the Business dynamics
  • Changing of government policies
    Peer pressure from free trade agreements and so on but the valuation of the ASSET applied by the company can be done with some guidelines … So one must seek VALUATION of any company and look for the equities with growth mind set management with discount on ASSEETS
    i share excellent material in the value walk in this regard

and for the method one should apply one can look at

Thanks again @kkpatel1924 and @james_kerala for drop in to the thread and sharing your views
regards

This one illustration But price are real This is not buy or sell recommendation. I am not SEBI approved consultant or Analyst .

WHY THE TRIMMING or taking LOSS is BETTER THAN making NEW PURCAHSES Please Double click the image for bigger view

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@yourraj

Reading your discussions is interesting since you speak out of experience.

I am of the belief that, an investor or a trader, succeeds in his ability to decide his Exits. That is where most maturity is required.

Making an investment is not much different from the mythological “Chakravyu”, where entering is doable. It is not too hard to make a list of “Good” stocks and ascertain a discounted price to enter; but, very few are able to take the profit and get out. It is difficult.

There are so many threads in this forum that have PFs with good companies.(Else, the person is promptly guided by our senior members.) But, only a select few PFs succeed. Year on Year success is still a distant dream. That is because Exits are not given due importance.

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indiscipline has cost even the best of traders a lot of money.
thanks @jamit05
Any professional investor should have two targets when he is about to make the investment .
1st target he must have a price target at which he must take his profit
and 2nd target should be fixed in terms of time or price i.e at which price he must cut his loss or what should be the time frame of the investment giving importance to former if the Loss has reached the threshold of STOP loss one need to exit .but this is very difficult to achieve as one may say ok i have fixed 15% STOP loss and it doesn’t matter if that goes beyond a couple more like 16 17 or 18% .May be that will recover tomorrow . The situation is really CATCH 22 . So written down goals and steps is very easy but practical following them and abiding the rules takes time . but in long run it help to Preserve the CAPITAL …

One may stay invested at the time of stock prices hammered, because that does not mean the companies’ customers will stop giving them business. The market may think of many of these promoters as shady and most of them actually are. But their products and services are trusted by clients. And that trust is what it takes to stay in business, not a high stock price. BUT on the TOP of that one must had done sound ground work while analysing the company if HE WANT TO KEEP INVESTED IN THE COMAPNY THAT IS IN CORRECTION MODE.
one must not forget the Wheel of stock markets

one must have special indicators i am sharing an excerpt from the book of Santosh nair
image

When businessmen and traders outside the stock market start heading the market convinced that this is the place to make easy and good money one should stand cautious and should reduced the positions and take the profits .The Old MYTH of STAYING LONG is not always a good STRATEGY .I may be wrong but one must device one’s own strategy and i request the boarders and seniors VP to share their strategy on this .

regards

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This is a great idea to know when a stock in your PF has become expensive, and that is when you sell it and move the proceeds into another stock which might be available at low valuations.

However, placing a stop loss gets complicated. Each individual scrip has its own tendency to make price movement, depending on:

  1. Its Market Cap. A big counter like TCS won’t likely move 15% easily, but Cyient or Sasken will quickly hit stop loss.

  2. Its Industry: B2B counters crash easily, wheres FMCG stocks, heavy energy Cos they don’t so much.

Point being deciding a stop loss is a little tricky.

I think one should sell a stock if there is something strange brewing, otherwise one should sit around and wait for the bad phase to get over.

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