March 12, 2008
During this tumultous time in the market, knowing when to sell is of prime importance. We talked to several portfolio managers this week about how they determine when is right time to sell in their portfolios:
- Gary Chapman, Guardian Capital: “The main reason [to sell] would be if the driving forces of growth that we bought it for are no longer there. They may have played themselves out, they may have petered out, we may have simply been wrong. If the drivers of growth are no longer there, we’ll sell a name. Another reason to sell a name is simply the valuation getting out of line relative to the growth factors.Also, when running a relatively concentrated portfolio, what we like to do when we look at a new name is to look down on our list and see what we have less confidence in; so it’s an add a name, sell a name kind of idea. Those are the main reasons for selling. Clearly, balance sheet, since quality is an issue for us — if the balance sheet deteriorates, that’s a reason to trim a name and perhaps sell the entire name. If there’s a management change or the management integrity isn’t what we thought it was, that would be a reason to sell a name. Those would be the main factors.”
- Mark Petrie, Hokanson Associates: “A number of things can trigger a sale. A stock hitting the price target is certainly one of them. Stryker is a recent example of a stock hitting our price target. Sometimes, we’ll just trim a holding when it hits our price target, especially when it’s a company of as high quality as Stryker. Other times we’ll sell the position outright, but only after considering the tax consequences for our clients. An investment thesis that is no longer intact is another reason to sell a stock. An additional reason might be that a top-down decision to shift from one sector or asset class to another sometimes necessitates a sale as we seek to lower the weight in one area and increase the exposure to another.”
- Christopher White, Fiduciary Trust Company: “We do look closely at valuation. In that regard, if the prices advance beyond our price targets, then yes, we will advise our officers to start trimming or scaling back on positions. We also have targets in terms of portfolio weights since we do not want to see a position grow too large if it has been successful. We also look very actively at the investment thesis for our holdings to make sure that, in fact, it is still valid and we look carefully at the quality of management. If we see deterioration or loss of confidence in management, then that will also trigger a sell.”
For the full investing strategies report, including interviews with each of these portfolio managers, and overview of current conditions for investing and stock picks, click here.
