Selling is hard. So start practicing!
I sold Integrated Research (ASX: IRI) shares for $1.47 a pop on 19 October. Today the shares are trading at $1.13 down 30% in a week from a speculative bubble that may have been caused by The Motley Fool Australia marketing Integrated Research as its top stock for 2012-13.
When I sold, Integrated Research was up 265 percent since my recommendation in the first edition of Motley Fool Share Advisor. IR was also up a market obliterating 300 percent since I’d recommended it as one of TMF Australia’s radar stocks.
Like me, you may have found IR was close to 3 times larger a position in your portfolio than originally intended. That’s a nice problem to have, but it is still an issue that requires thought. For example if you bought a 5 percent position, IR was now over 13 percent of your portfolio.
Above $1.30 IR was significantly overvalued. So why hold 3 times your normal position in an overvalued company? That would be stupid right? But hey if you see it differently please let me know in the comments below.
When the market tosses you fat pitches, whack the ball out of the park. Or at least get safely on base, as I did by selling half our position in IR.
For the record I also recently trimmed M2 Telecommunications Group (ASX: MTU) at $3.84 a share. And sold some managed funds to further increase our cash.
Why trim M2? Well to paraphrase founder and ex-CEO Vaughan Bowen quoting his dad, you don’t go broke taking a profit.
This market and the companies I sold could run higher, but it’s essential to have the funds available to invest during the rare times when bargains appear. And those bargains are sure to come. We’re in a secular bear market and there’s a very low probability that we’ve already had the cathartic bottom.
More shit comes our way.
The 100 percent invested mantra was born of and is a sensible approach during a secular bull market. People making significant ongoing contributions to their investable assets may also find it useful.
But for everyone else, wake up and smell the secular bear and please consider the following strategy for the next 3 to 6 years.
If you’re feeling good about the market start selling, when you don’t want to look at your stock account start buying.
While I am increasing our cash, there are still opportunities in this market for investors. I’m currently looking to add to my position in one small Australian company.
Disclosure: I have nothing to disclose except my genius stock picking skill and willingness to accept I may be wrong, oh yeah, and long IRI and MTU. I wish it was genius skill, then maybe I wouldn’t have all the battle scars the market has inflicted on me over the decades. I left The Motley Fool around June 2012 and have no regular contact with anyone at the company. This is a blog for entertainment purposes, it is most definitely not financial advice. I’m not licensed to give financial advice and I will be wrong… a lot of the time.