Theoretical best way to sell individual stock shares?

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boggler
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Theoretical best way to sell individual stock shares?

Post by boggler »

I need to sell some individual stock so I can invest the money in low cost Vanguard funds. What is the best way to do this, of the following options? I want to get the best possible price and minimize the time out of the market. The shares are held at vanguard and I want to invest in Vanguard traditional mutual funds.

-Place a market order so that it executes at the market open.
-Place a market order at some arbitrary time during the day.
-Place a limit order at the ask at some arbitrary time during the day.
-Place an order to execute at the closing price. How do I do this?
-Something else?

Thanks.
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cheese_breath
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Re: Theoretical best way to sell individual stock shares?

Post by cheese_breath »

My opinion only, but none of the above. Unless I was in the 10% or 15% tax brackets with large long term capital gains I would do it asap. If I had large LTCGs I might want to get some sold before Dec. 31 (up to the 15% limit) and do the rest after Jan 1.
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bobbun
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Re: Theoretical best way to sell individual stock shares?

Post by bobbun »

Take this with a grain of salt as I have only done about fifty trades lifelong, mostly in ETF's.

There's no theoretical best way. It depends on your objectives and the securities involved, with liquidity being the characteristic of the security that matters most.

I wouldn't personally choose to try and time the market by guessing what time of day I would get the best price, because I wouldn't anticipate that my knowledge of the current bid/ask tells me anything about what that bid/ask will be in five minutes, ten minutes, or an hour. However, I would prefer to have some information about the current price, which is by itself a reason for not choosing to do a market order for the open. I won't know what the price will be for certain, but I will have a better idea of it five minutes after the open than I will two hours before.

Market order vs. limit order is really a question of how big a hurry you're in. If you want to sell right now, use a market order. If you want to sell at a particular price (with some limitations), use a limit order. Expect that if you use a market order you will get the bid price. For the most liquid stocks, the difference will be small and you may not care. As you get into less frequently traded shares, the spreads will widen and the payoff for using limit orders will increase, but so will the time required to trade and the risk that your trade won't complete.

The best tradeoff between speed and price obtained may be to put in a limit order for a penny below the ask.
talzara
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Re: Theoretical best way to sell individual stock shares?

Post by talzara »

The usual way of doing this is to put in a limit order a few minutes before market close. You may get some slippage if it drops at the close, but you may also pick up some gains if it gains during the close. On average, it balances out.

You could also consider buying Vanguard ETFs rather than mutual funds. Then, you would not have to wait for market close, because you could buy the Vanguard ETF at the prevailing price at any time during the day. You would, however, pay two sets of commissions and two bid-ask spreads -- though the popular Vanguard ETFs tend to have only a penny spread.

Market orders expose you to the risk of hitting the market right at the moment of a flash crash. Market orders are used only by retail investors -- professional traders do not use them. When they sell at the market, they actually put in a limit order at the bid price. Yes, the risk is tiny -- flash crashes happen in milliseconds, and you're highly unlikely to hit one just as it happens. But why take on this risk if you don't have to?

Vanguard mutual funds calculate their net asset values based on the closing price -- not the opening price. Thus, selling at the open would maximize your time out-of-market compared to any of the other options -- either the whole trading day, or overnight. Stocks do not open at their last closing price. The NYSE and NASDAQ run auctions to make sure that the opening and closing prices are meaningful.
Last edited by talzara on Thu Dec 26, 2013 9:57 am, edited 1 time in total.
MnD
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Re: Theoretical best way to sell individual stock shares?

Post by MnD »

If you put in an sell limit order at the current ask, your order is behind the order that generated the ask so I wouldn't suggest that.
I put in a limit order between the bid and ask, closer to ask if the spread is more than a couple cents.
If you put an order in-between, your shares become the ask for anyone placing a market buy order or for someone who put in a limit buy order at the ask for speedy execution but with price protection.
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Karamatsu
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Re: Theoretical best way to sell individual stock shares?

Post by Karamatsu »

Well, theoretically the way to get the best price is to sell at the high for the day, but since nobody knows what that will be, or when it will happen (except in hindsight), practically speaking there is no selling strategy that will get you the best price. The best you can do is be defensive by using a limit order rather than a market order. This is important not just to protect against flash crashes, but if you place a market sell order you're telling the broker "sell at any price," and while that usually works out OK, sometimes you can get an unpleasant surprise. What I usually do is just decide what price I'm willing to sell at, and place my limit order there.

Also, of course, do take the advise on taxes seriously (unless this is a tax-advantaged account). Especially at this time of year, smart tax handling can be worth far more than the few extra pennies per share you might manage to wring out of the market.
livesoft
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Re: Theoretical best way to sell individual stock shares?

Post by livesoft »

If you are using Vanguard and you do not want to be out of the market, then try the following:

1. Move emergency fund to Vanguard.
2. Sell stock whenever you want, but at the high for the day. That's tricky, so I won't even try to explain how to do that. It could be in the morning, afternoon, just after the open, or just before the close. And don't sell any more in value than the amount of the emergency fund money you have.
3. On the same day, use that emergency fund money to submit an order for the Vanguard fund you want.
4. Wait 3 days and repeat.
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n00b_to_investing
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Re: Theoretical best way to sell individual stock shares?

Post by n00b_to_investing »

I don't think i would ever do it. please have mercy and in the spirit of keeping it theoretical how about writing a covered call at a strike price you won't regret if get called. You capture the option premium + disinvest at your expected price
linenfort
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Re: Theoretical best way to sell individual stock shares?

Post by linenfort »

Just out of curiosity, what are the stocks? Could you list them or at least some of them?
Topic Author
boggler
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Joined: Thu Feb 07, 2013 1:29 am

Re: Theoretical best way to sell individual stock shares?

Post by boggler »

n00b_to_investing wrote:I don't think i would ever do it. please have mercy and in the spirit of keeping it theoretical how about writing a covered call at a strike price you won't regret if get called. You capture the option premium + disinvest at your expected price
But there is a possibility you won't sell at all then, right?
Akiva
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Re: Theoretical best way to sell individual stock shares?

Post by Akiva »

boggler wrote:I need to sell some individual stock so I can invest the money in low cost Vanguard funds. What is the best way to do this, of the following options? I want to get the best possible price and minimize the time out of the market. The shares are held at vanguard and I want to invest in Vanguard traditional mutual funds.

-Place a market order so that it executes at the market open.
-Place a market order at some arbitrary time during the day.
-Place a limit order at the ask at some arbitrary time during the day.
-Place an order to execute at the closing price. How do I do this?
-Something else?

Thanks.
This depends on how many shares you have, how liquid the stock is, and what the bid-ask spread is.
psteinx
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Re: Theoretical best way to sell individual stock shares?

Post by psteinx »

Yes - much depends on the liquidity.

If it's a $50 stock trading on a 1 cent spread, and assuming your quantity is small enough so that it likely won't move the market, then probably the best way to do this is with a market order, and NOT at the close or the open, but pretty much anytime in between.

If the market is less liquid and/or your quantity is large, then you'll likely want to use limit orders, and may want your order size to be smaller than the total quantity you want to sell (i.e. you may want to break up your order).
lazyday
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Re: Theoretical best way to sell individual stock shares?

Post by lazyday »

psteinx wrote:Yes - much depends on the liquidity.

If it's a $50 stock trading on a 1 cent spread, and assuming your quantity is small enough so that it likely won't move the market, then probably the best way to do this is with a market order, and NOT at the close or the open, but pretty much anytime in between.

If the market is less liquid and/or your quantity is large, then you'll likely want to use limit orders, and may want your order size to be smaller than the total quantity you want to sell (i.e. you may want to break up your order).
I agree.

Rick Ferri here has suggested avoiding the first and last (half?) hours of the trading day. They can be volatile. You also could try to choose a time and day that has a lot of trading, for example, avoid holidays and maybe prefer early (before lunch) in the trading day? Not sure early is more liquid, just seems it to me.

Seems to me that market orders can be better than limit for huge, extremely liquid stocks. I'm not a trading expert though.

Your broker should be able to show "bid" and "ask" prices during the trading day. You can also see average trading volume with stock quotes from places like google, or from some stock exchange websites for a more primary/direct source.
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