Jul 10, 2022
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Mental Models discussed in this podcast:
- Second-Order Effects
- Mean Reversion
- Factor Investing
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Show Outline
- Selling Series
- A lot of time is spent on buying stocks. Yet, almost just as important, if not more is knowing when to sell stocks.
- I find this area relatively underexplored, so I want to begin a long-term series on selling stocks from the framework of a value investor.
- Previously talked about selling in a single episode on Ep. 106
- Today’s focus: Strategy matters
- There is no one-size fits all approach
- How you buy stocks will influence how you sell them
- Your portfolio allocation strategy will matter
- THe number of stocks you review in a year will matter
- Whether you plan to own a cash position or not will matter.
- Excluded from this series:
- Won’t be discussing momentum investing
- Won’t be discussing trading or technical analysis investing (except as a marginal part of value investing when relevant)
- Entire focus assumes that you are a value investor of some sort (whether deep value, compounder, graham value, quality, etc…)
- Deep Value:
- Buy at 2/3rds of value and sell at “full price”
- Compounders:
- You want to hold for a long-time.
- Sell when compounding ends, plateaus or you were wrong
- Net-Nets
- Hold a year then reassess
- Waterfall Stocks:
- Hold so long as dividend yield is sufficient to provide target return
- Dividend Growth Investing:
- Buy companies that pay dividends and grow them and sell them when they cut or eliminate their dividends
- Buy and Hold
- “Never sell”
- Works for a subset of stocks
- Tends to overlap well with compounders and Dividend Growth investing