Seth Klarman calls selling “The hardest decision of all” for a long investor. Some people prefer to buy securities that they will never have to sell. Warren Buffett says his holding period is “forever.” Any value investor who has researched a company can determine if they would buy it at it’s current price or not. Knowing when something is fairly valued is another story entirely. Klarman declares that “all investments are for sale at the right price.” (Margin of Safety, 218)
Another way to think about this is the Sir John Templeton way: Sell a security when you find a more attractive one. I was reminded of this reading a friend’s fashion blog post this morning. The Sassy Scientist declares, while getting rid of half her clothes, that her motto is “Get rid of the good to make room for the great.” This is really a fantastic way of thinking about your personal investment portfolio.
In this way, selling only becomes a choice of weighing two investments. One is your current investment, another is a potential investment (which may well be cash). Study both investments and decide which one you would rather be holding. Then go for it. Sometimes this means looking at an overheated stock that has had a great run and considering that the large downside risk and lack of fundamental upside makes it less attractive than cash. Sometimes this involves comparing similar stocks in the same sector, and deciding that one represents better value than the other.
Part of portfolio management is always having an idea of what you would like to invest in. Particularly with a small portfolio, you cannot always invest in everything that you want to. If you keep a watch list (Tickerspy is good for this, but do not get carried away!) and regularly review your investments, you can keep weighing one against the other, optimizing your portfolio.
Posted by jrtaff 
