The answer is very simple and works 100% of the time, provided you have the discipline to stick with it:

Pre-determine a “stop-loss” point or percentage and ride the ride.

A “stop-loss” is the point below which you absolutely will sell the security, and this point can inch upward as the security moves ever higher (otherwise known as a “trailing stop”).

This way, you risk minimal downside and enjoy all of the upside.

-Phil

I consider quite a few other things, but I can’t anticipate things 10-15 years down the line, so I don’t. The longer I can put off the exit strategy on my car, the better .

I don’t sell very often at all, but I would if I had a good reason to.

Just in my opinion I see trying to act on the gain especially a fast blip like that IS trying to time the market. That being said I have bought more of stocks when they have fallen a quick 20% for no perceived good reason (in my book still trying to time the market). Exit and entry points are great and there is certainly weight behind locking in that 20% profit, but the minute you do it will go up another 40%.

There certainly is no right or wrong and everyone’s got a theory on the best way to buy low and sell high. I just personally have found that completely ignoring gains or losses during short periods of time works for me with individual stocks. The minute I start to follow the roller coaster and act on dips and rises (of which have very little basis in reality when it comes to the true value of the company) I have found I probably make rash or stupid decision to buy or sell based strictly on me trying to take advantage of/time the short-term market movements.

IMVHO you should only sell an investment if it absolutely does not make long-term sense in your master portfolio plan. Yeah it’s great if profit beats estimates or revenue increases – but those are just quarterly short-term measures that give you insight but certainly don’t tell you the whole story about a stock’s future. Analysts tend to focus on the short-term as well and honestly are dead wrong especially with price targets way more often then they are right. It’s a big pool out there with lots of people who garner inside information and other facts that you and I as lowly individuals can never take advantage of so even if a stock jumps 20% for what we think is no good reason – there may be a good reason we just don’t know about yet.

Also need to consider transaction costs (selling and buying something new) and taxes (if not in a retirement account). Ok I’m done rambling….I can see your point but I’ll just say it’s a slippery slope and unless you really do your analysis and stick by your guns, it’s very easy to fall into the buy…sell…buy…..buy…sell mentality.

Ok last question – If your Target Retirement Funds or Index Funds went up a lot faster than you expected would you sell those too? If yes where would you move your money to?

MFJ
Who hasn’t blogged in a while and is spewing pent-up useless advice all over jim’s blog

If shares of stock go up 20% and it’s for no reason and you wanted that level of growth in a year, I’d say sell. If it went up because revenue or profits beat estimates, then your plan changes. You should act according to your long term plan, which includes share price, and how that’s adjusted by the situation.

You didn’t come off harsh or anything, just too focused on the “selling the swings” aspect which was never part of it. To ignore a gain is just as bad as trying to time the market.

I dunno I’ve never really looked for exit points on any of my investments. Maybe I’m in the wrong with that philosophy but I personally don’t believe in taking profits off the table unless things are completely out of whack, which again can be a very hard thing to judge.

I guess my question would be what fundamentally changed with this stock other than a quick 20% blip in stock price. Is it likely to become sub-par performer in the long-term because the price shot up on a given day? I dunno I personally am against the taking profits mentality because it leads you to think you know what you are doing with short-term fluctuations and in the end it probably will just drive up your trading costs and lower your investment returns, which is why index and target retirement funds are such a good idea. The less thinking us individual investors have to do the better our returns are likely to be….sorry if I came across wrong in my original comment.

Just my two cents –

MFJ