Investing

Taking money off the table

  • Last Updated:
  • Aug 13th, 2016 7:10 pm
Tags:
Deal Addict
Dec 3, 2014
2348 posts
1840 upvotes
Ontario

Taking money off the table

I have a couple of small caps that are up quite handsomely in the last month or so. Does anyone have any rules they follow with respect to taking some money off the table after a big run?
11 replies
Deal Addict
Oct 1, 2006
3249 posts
4472 upvotes
Montreal
What you are describing is called market timing, which is best avoided.
Deal Addict
User avatar
Aug 4, 2014
3963 posts
4723 upvotes
Toronto, ON
Good question. Every time I look at NFI and think that we should sell some - it goes up some more and we keep holding. Similar with NPI - was thinking of selling it earlier this year, glad that I didn't. But at the same time, looking backwards, "should've sold" some stocks when they were up (or at least not that much down lol)

I used to have a 30% rule, so sold BCE recently when it reached that mark - not sure if it was a good decision...
Deal Fanatic
User avatar
Oct 9, 2008
5684 posts
2251 upvotes
Thornhill
If paper-gains exceeds the stock's entire annual dividend then I start to consider it. Only if it's a large-cap multi-national stock such as Walmart do I not question it.
Deal Addict
Dec 3, 2014
2348 posts
1840 upvotes
Ontario
None of the stocks pay a dividend.

Years ago I recall reading some rule about taking some off the table once you are up 50%?
Deal Fanatic
User avatar
Oct 9, 2008
5684 posts
2251 upvotes
Thornhill
llpresident wrote: None of the stocks pay a dividend.

Years ago I recall reading some rule about taking some off the table once you are up 50%?
Then it's most likely a growth stock. Valuations vary widely but almost all growth stocks are priced right now at a large premium comparative to historically. Your decision should focus on risk management - possible upside vs possible downside within your investment horizon (days, months, years). If you don't have enough information to accurately gauge risks/catalysts then it's best just to take the money and run imo. I trade stocks I often have absolutely no clue on how their business really operates and my decisions for entry/exit are almost solely based on price alone and whether I think the market is mispricing in the short-term, I don't sit there and try to argue with the details. That's what analysts, talking-heads and investment advisers are paid to do, not traders.

The longer your horizon, the easier it is to usually just let you winners run (usually). However, since you're talking about small-cap...
Deal Fanatic
User avatar
Dec 14, 2010
7113 posts
9300 upvotes
llpresident wrote: I have a couple of small caps that are up quite handsomely in the last month or so. Does anyone have any rules they follow with respect to taking some money off the table after a big run?
It depends, there are different strategies that could be deployed.

If you're doing a trading based on value play, it makes sense to sell when valuation reached its full level. A calculation based on TTM earnings and forward earnings can tell you that. That's how I setup one of the sell rules on my value models.

If it's a trading based on momentum, you could either sell at a absolute gain (like 50%) or put a trailing stop loss to attempt to maximize it further. Alternatively, you could sell your position when it starts to underperform the small cap index (SP600, for example). That's how I setup some of the sell rules on my models that uses momentum.

Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:
Investing strategy based on dividend growth

Trading strategy based on Graham principles.
Deal Fanatic
Jul 1, 2007
8569 posts
1763 upvotes
Do a trailing stop loss.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Deal Fanatic
Oct 1, 2004
6651 posts
995 upvotes
GTA
Thalo wrote: Do a trailing stop loss.
whast the difference between

what % do you set the stop loss at? and how often would you adjust it?
Deal Fanatic
Jul 1, 2007
8569 posts
1763 upvotes
Me, if I have a nice gain on something i do a 5% trailing stop and hope it doesn't fill.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Deal Fanatic
User avatar
Sep 23, 2009
7086 posts
5221 upvotes
Some questions to ask yourself ....

When you first entered the investment/trade what where your expectations? If they have surpassed them, it may be time to lighten your load.

Has anything happened that would change your expectations since you first bought? If some fantastic news has hit, maybe the stock price doesn't reflect it yet.

When you first bought in, did the stock represent, say, 5% of your portfolio and now some much higher percentage? Maybe time to sell some so that sleeping at night isn't affected.
Deal Guru
Feb 4, 2015
10334 posts
6701 upvotes
Canada, Eh!!
Never a bad idea to lock in some gains. Perhaps sell half.
2022/3: BOC raised 10 times and MCAP raised its prime next day.
2017,2018: BOC raised rates 5 times and MCAP raised its prime next day each time.
2020: BOC dropped rates 3 times and MCAP waited to drop its prime to include all 3 drops.

Top