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Posted by BGFan on December 25, 2007, 7:03 am
Hi, I am reading this book currently. All through
BG talks only about how to select stocks for buying.
But couldn't find much info about what's the right time
to sell. Does any of his other books cover this info?
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Posted by Ron Rosenfeld on December 26, 2007, 6:50 am
>Hi, I am reading this book currently. All through
>BG talks only about how to select stocks for buying.
>But couldn't find much info about what's the right time
>to sell. Does any of his other books cover this info?
When I was reading Graham, and others, fairly extensively, I found a
paucity of information concerning when to sell.
And over the years I've heard all kinds of recommendations, all of which
make sense in their context.
I think you have to decide on "sell rules" in the context of your overall
investment strategy.
For example, you might do set up a strategy such as:
1. I will hold a total of ten stocks
2. I will select them using "Graham analysis".
The time to sell a stock would be when you have a candidate that your
analysis predicts will do better than any of your holdings.
Or, you might decide on a strategy that invests in several index funds,
and/or bonds or bond funds, with some coherent asset allocation.
The time to sell will be when your actual allocation gets significantly
different from your target, and you are rebalancing.
If you are a "momentum player" (definitely NOT BG's technique!), you might
adopt rules that include, selling when you have sustained a certain loss
below your buy point (e.g. 8%) and maybe selling 1/2 when your stock goes
up a certain amount.
etc.
--ron
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Posted by Nino Samac on December 26, 2007, 3:24 pm
>Hi, I am reading this book currently. All through
>BG talks only about how to select stocks for buying.
>But couldn't find much info about what's the right time
>to sell. Does any of his other books cover this info?
Benjamin Graham's says you should buy stock to hold it *forever*.
Buying 20% lower and selling 20% higher than you think it's worth is
not even considered investing. You valuate stocks and buy those that
are grossly undervalued, such as buying a dollar bill for forty cents.
There are times when markets offer no such stocks, and it may last for
decades, but you should wait. When they are available (and you should
choose only companies that meet Graham's criteria), you buy and buy
big. And then you hold. Don't look at the market and don't sell unless
you have a reason to, and reason is not the market price of your stock
that's gone even much lower (in fact if that's the case you should buy
even more) but it is the trouble in a company itself, making it a
company that fails to meet Graham's conditions and is likely to go
down. You don't even look at the market, except from time to time to
get an overall picture. There is a time to sell sometimes, and that is
if your own stock got ridiculously high, and you might want to buy
something else. In all other cases, you hold.
Anyway, not everybody is able to listen to Graham's advice, and you
should look at your personality for patience, strength and
determination. If you lack any of those, you may find some other
investing strategy suits you better.
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Posted by Elle on December 26, 2007, 7:26 pm
>You valuate stocks and buy those that
> are grossly undervalued,
snip for brevity
> There are times when markets offer no such stocks, and it
> may last for
> decades, but you should wait.
If indeed there are no stocks that meet Graham criteria, it
seems to me that the investor should strongly consider
buying significantly into index funds with adequate
diversity. Historically speaking, leaving one's money out of
stocks and instead in, say, a bank account has not paid well
when we're talking about "decades."
For all 20-year periods from 1929-2005, the annualized
return averages 11.4% with a standard deviation of 3.3%. See
my favorite tool for persuading folks that investing in
stocks is strictly for those with a long time horizon,
http://moneychimp.com/articles/randomness/time_horizon.htm .
Perhaps the matter is moot, though, since I think that even
a strict reading and application of Graham criteria to the
past will still yield many opportunities within all 20 year
periods. (I think from general reading this has been duly
studied, and from these studies one could argue there is
much to recommend in Graham's approach.) Maybe the bigger
question is, when one sees what appears to be a Graham-ian
opportunity in Stock X, what fraction of one's portfolio
should the investor, especially the new investor, let Stock
X be? Graham certainly insisted on diversification.
I suppose that, again, studies have indicated that the
Graham-ian opportunities over 20 year periods have always
been sufficiently diverse.
Maybe the most important lesson to take is that one need not
strictly apply Graham-ian criteria to be an effective
investor. His are guidelines. Insight into just how mutable
his guidelines are over time is provided in modern editions
of Graham with well-chosen recent examples by Jason Zweig
accompanying the original Graham text.
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