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Sometimes people come up with exciting stock suggestions on this board and even invest in them. Then they get lucky (or whatever they call it) and ride the stock up 50%, 100% or more — and don't know what to do. Get out? Stay in? Wish they had never bought it?
Exit plans are nice. If you don't like the $$$MrMarket$$$ approach (take the 15% and run), at least devise something! Just a suggestion:
- You entered the position with, say $4000.
- The stock rises 40%, now the position size is $5600
- Sell off 25%. That is $1400. Your position is now $4200.
- When the stock rises another 40% (size 5880), sell another 25% ($1470), leaving a position of $4410. Of course, the stock has about doubled now.
- Rinse and repeat.
The idea is simple: when the stock runs up, you trim your position. Whether you trim it back to its original size or you trim back, say, half the profits, or do something like my example, really doesn't matter. You get the idea. However, you still need an exit plan for your core position, and for when the stock tanks, or goes nowhere.
A bit more radical is:
- You entered the position with, say $4000.
- The stock rises 30%, now the position size is $5200
- You sell off about 80%, or $4160.
Now you are out with a modest gain (4%). Find a new stock, and forget about that residual position. You need only one future Microsoft in your residual positions to do exceedingly well. And those positions are essentially free too (you even got money for them). Of course, you still need an exit strategy for when the stock tanks before hitting 30%, or just goes nowhere. Again, the percentages are immaterial. In this case you want to get a bit more after selling than you invested (to keep your working capital growing).
Who knows, I might even implement one of these schemes myself! (When I decide to go for an 'exciting' stock myself.)
Regards,
Karel
Exit plans are nice. If you don't like the $$$MrMarket$$$ approach (take the 15% and run), at least devise something! Just a suggestion:
- You entered the position with, say $4000.
- The stock rises 40%, now the position size is $5600
- Sell off 25%. That is $1400. Your position is now $4200.
- When the stock rises another 40% (size 5880), sell another 25% ($1470), leaving a position of $4410. Of course, the stock has about doubled now.
- Rinse and repeat.
The idea is simple: when the stock runs up, you trim your position. Whether you trim it back to its original size or you trim back, say, half the profits, or do something like my example, really doesn't matter. You get the idea. However, you still need an exit plan for your core position, and for when the stock tanks, or goes nowhere.
A bit more radical is:
- You entered the position with, say $4000.
- The stock rises 30%, now the position size is $5200
- You sell off about 80%, or $4160.
Now you are out with a modest gain (4%). Find a new stock, and forget about that residual position. You need only one future Microsoft in your residual positions to do exceedingly well. And those positions are essentially free too (you even got money for them). Of course, you still need an exit strategy for when the stock tanks before hitting 30%, or just goes nowhere. Again, the percentages are immaterial. In this case you want to get a bit more after selling than you invested (to keep your working capital growing).
Who knows, I might even implement one of these schemes myself! (When I decide to go for an 'exciting' stock myself.)
Regards,
Karel
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