When to Let Go

     One of the hardest things about investing is the decision of when to sell a particular position. It's important to not let emotions enter this decision. One thing I agree with Jim Cramer about is the notion that when a stock appreciates, the investor should sell a portion of his position gradually, until the whole position is gain. This is because your initial investment has been returned to you, resulting in you playing with "house money". The danger here is that if the stock continues up rapidly, you will have fewer shares to profit from. Maybe its just me but I think being conservative will win out in the long run. Another reason to sell is if the reasons that you bought the stock in the first place are no longer valid. Remember the "theme" investing strategy from a previous post? Well themes don't last forever. That is why I write a new forecast each year. Sometimes themes last for several years and sometimes they are very temporary. Last year I noticed that everywhere I went, I saw young mothers with babies. It seemed to me that the baby-boomer's children were starting families and even their grandchildren were starting families. The one thing that most parents will spend money on is their kids. I decided to invest in the struggling toy company Mattel. With an 8% dividend and increased demand for their products, I had a good year holding Mattel. However, they could not compete with industry leader Hasbro so I sold out and moved on. I will continue to watch Mattel in the future for another possible buying opportunity. Just yesterday, I placed about seven limit orders to sell some of my holdings.A limit order allows you to name the price you are willing to sell at. I always use limit orders for all buys and sells unless there is some special circumstance. Why am I selling some shares? Actually, I am concerned about several things: increasing interest rates, high valuations, political unrest, changes in trade relations with our trading partners, and so on. I still believe in stocks but it just seemed like a good time to lighten up on some positions, It is also a good idea to look at your portfolio for some losing positions to offset your gains. The tax code allows capital losses to offset capital gains entirely and even up to $3000 excess losses over gains. Any losses above $3k will have to be carried over to the following year. In conclusion, with today's low cost brokerage commissions, selling is not the costly move it once was. Just consider your tax consequences and the timing of dividend payments or distributions.