Profit reached faster then expected, what are good sell / hold heuristics?

Question

End of January I got my feet wet into a position and added to that same positions after noticing it was doing well 3 months after.

8 months into holding the value went up by 40%+ (no major news still strong fundamentals). I was expecting this stock to bring me double digits return after at least a year or two of investing so I feel got dumb lucky here.

Now there is a heuristic about letting your winners run. And I was intending on staying at least 5 years with the stock.

However, profit is already higher than I hoped for. The long-term growth strategy of the company to my knowledge does not make it necessarily worth 40% more today.

Do wise man take some money off the table or abide by the heuristic of letting winners run?

for those still reading, the stock is $IEP

PS: I do not pay taxes on capital gains

Answer 1

Investor - not trader, so I take that into account.

You stay in as long as:

• It makes sense from your point of view. As you say, you have doubts there. This is an asset manager - in a crash I can see it falling into harder times. Fundamentally it may now not be the best bet.
• You also swap out when you see something better. This is the old rotation game - T1, T2, T3 - first people go to the big names, once they are up they look for smaller names, then for small players (in the same field). If you paly that right and are lucky you can get the saame market move multiple times.

There are many scenarios in the past where I can show you that holding multiple years is smart - heck, Microsoft had a HUGH run before 2000 and then in the last years. But in your case, you ahve doubhts the company is worth that - so ste out with a part, possibly all of it.

Answer 2

There should be a thesis change for why you would sell, rather than simply because the stock went up.

A valid thesis is the stock was undervalued, say trading at 10x P/E and it's comp's trade at 14x, the stock rose by 40% so now it is also at 14x and could be considered fairly valued. So now you sell.

What was your thesis when you made the investment and has it changed? I would consider this before selling. If you think the stock has overshot that may make it worthwhile trimming the position.

Answer 3

If you knew the what the future would be then you would know what the best course of action is.

If you're a long term investor and you feel that there are more good gains to come, do nothing.

If you think that the stock has gotten well ahead of itself, lighten up the position and book some profit.

If there is another stock that you believe is a good undervalued opportunity, sell all and lock in your gain.

If you want to lock in a large part of the gain and you don't mind selling at a somewhat higher price, if the stock has options, do a low/no cost option collar it so that you have a defined profit and loss range. Unfortunately, IEP has a high dividend and very wide B/A spreads so it's not a good candidate for this.