After my post last week titled Market Ratings & Sell Discipline I thought I would add some further thoughts on this which can be one of the hardest things for an investor to get right. Certainly in my experience it is almost impossible to get it right all the time. I would just add that last time I was talking there about an upper limit on valuations that I use as a sell trigger.
As I mentioned in that post in passing, that on some stocks you will probably have a view of a full valuation for their type of business and financial metrics based on their past trading history which may well lead you to consider selling at lower valuation level than the 2% & 20x that I mentioned.
However, it is important to try and stay disciplined which being a quantitatively driven income investor helps with, so what other factors does that lead me to look at for sell triggers?
Summary and Conclusion
So all of this follows on from constantly monitoring your portfolio and potentially leads to turnover which is something that I have had varying views on over the years. In my early days I was much more active as I was building a portfolio from a low capital base and therefore I tended to trade more aggressively for quick gains and then repeat, although even back then I did run some positions for longer periods.
As my portfolio grew and compliance regimes which I was subject to at the time became more onerous one had to be more investment rather than trading orientated. In recent years as I have become free to invest as I like, I have generally adhered to that longer term investing type philosophy allowing my dividends and gains to compound although with some trading around the edges too.
However, more lately as the market has started to flatten out and returns have been harder to come by I have been trying to become more proactive again, despite my natural reservations about turnover and the potential costs involved as it always pays to keep a very close eye on the cost. However, with fixed price, low cost on line dealing, this really should not be a problem unless you are dealing in very small amounts, as a £5 commission is equivalent to 0.1% on a £5,000 transaction for example, although you do also have to factor in the spreads and the evil 0.5% stamp duty (but not on AIM stocks these days).
Any way I'll leave it there as I have waffled on for ages already but if like me you are a bit worried about doing too much turnover then have a read of this piece titled Portfolio Turnover–A Vastly Misunderstood Concept by John Huber at Base Hit Investing - you may even have an epiphany, but still beware of over trading for the wrong reasons.