Investors often obsess over the correct moments to purchase securities/assets, but discuss less frequently the circumstances and nuances of selling. A friend sent me this Wall Street Transcript interview with Christopher Mittleman awhile back. In the interview, Mittleman provides some very thoughtful insights, especially when to sell securities. A quick and worthwhile read.
When To Sell, Psychology
“…we won’t reflexively sell it because a lot of times what happens is that I may think the stock is worth a particular price, but it may continue to advance much higher than my fair value estimate. And that often occurs because my estimates tend to be on the conservative side.
So what I found through experience is that I should be somewhat slow to sell in a situation driven solely by a rising stock price, because there will generally be a good deal of positive momentum occurring in the stock. I know it sounds strange that a value investor is talking about momentum and things of that nature, but when you are value-oriented you tend to be buying stocks when they are on the decline. And there is a certain amount of negative momentum with that, and it usually behooves you to buy them slowly…When we sell stocks that have been great successes, it’s usually the opposite that occurs. And it’s typically prudent to sell the stock slowly.
Notice, Mittleman is aware of his inclination to estimate too conservatively and adjusts his investment process accordingly to counter this behavioral tendency.
This is similar to advice that Michael Mauboussin recently gave on how to control one’s investment biases.
When To Sell, Making Mistakes, Opportunity Cost
“…we will sell something more precipitously if we think the price has moved into really untenable levels. We are not shy about selling out of positions when I see an extreme in the opposite direction or if the fundamentals appear to be deteriorating.
Clearly, any meaningful deteriorating in the fundamentals would be a trigger for us to sell. Sometimes this occurs before we have made profit in the stock, so we will exit the position at a loss…we make sure that we don’t fall in love with individual stocks. We try to hold stocks as long [as] we can, simply because we’ve found that by holding we usually get better returns…The other reason for selling a stock would be if there was a better opportunity that came around…in order to make room for the better opportunity.”