When to sell individual stock after run up?

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renegade06
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When to sell individual stock after run up?

Post by renegade06 »

Greetings BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.

My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
Last edited by renegade06 on Sat Jul 18, 2020 10:15 am, edited 1 time in total.
beckwith
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Re: When to sell individual stock after run up?

Post by beckwith »

Market timing is a gamble! Any recommendations you get will be informed speculation at best. If it were me, I’d sell and put 63% of the earnings in VTI/VTSAX/etc., save the rest for your taxes, and call it a win.
livesoft
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Re: When to sell individual stock after run up?

Post by livesoft »

When you buy something, you should already have a plan for what you will do for every outcome. So what did you plan to do when you bought these?
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bertilak
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Re: When to sell individual stock after run up?

Post by bertilak »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm Great thanks BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.

My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
I think it is a good two part plan (wait for long term gains then switch to index funds) but there should be a third part: If there is a loss before the year is up then Tax Loss Harvest out of the stocks into index fund(s).
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Explorer
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Re: When to sell individual stock after run up?

Post by Explorer »

I would take the profits now and shift them into index funds... no need to wait. Pay the taxes that are due to the government.

Individual stocks are too risky.
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Re: When to sell individual stock after run up?

Post by arcticpineapplecorp. »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
if you believe it won't plummet and may continue to go up, why would you sell it? You'd be leaving money on the table, right? You'd sell if you don't think it will go higher. That being said, the moment you do want to sell it, doesn't mean you're right.

Afterall, someone who's buying from you thinks the price will go up, otherwise why would they buy? At the same time you are only selling because you think it will go down. See how only one of you will be right? Unfortunately, there's no way to know ahead of time which of you will be right. Therein lies the problem with buying individual stocks. It's a gamble, unlike owning the entire market which grows overtime regardless of the speculation of individual gamblers.

best of luck.
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Re: When to sell individual stock after run up?

Post by andypanda »

You could sell enough to recover your initial investment & cover your taxes & maybe $500 extra to blow on something fun and useless. Keep the rest and see what happens.
whereskyle
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Re: When to sell individual stock after run up?

Post by whereskyle »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm Great thanks BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.

My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
I would take the short-term gain now because I personally cannot bear the risk of holding such a volatile asset as an individual stock.
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aristotelian
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Re: When to sell individual stock after run up?

Post by aristotelian »

When in doubt, split the difference. Sell some and let the rest ride.
livesoft wrote: Fri Jul 17, 2020 6:52 pm When you buy something, you should already have a plan for what you will do for every outcome. So what did you plan to do when you bought these?
What if you now have new information about the stock's valuation?
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Re: When to sell individual stock after run up?

Post by 1789 »

I would sell on Monday. All of it.
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Re: When to sell individual stock after run up?

Post by Call_Me_Op »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm Great thanks BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.
As soon as possible, as you are taking uncompensated risk by holding it.
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Re: When to sell individual stock after run up?

Post by burritoLover »

Any stocks that have been run up massively during the COVID crisis as COVID plays, especially those that have hit all-time highs recently, I would get rid off ASAP. Once we have a vaccine and things are back to normal, these are going to take a big hit IMO. Take the tax hit as a year from now you might be wishing you did.
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livesoft
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Re: When to sell individual stock after run up?

Post by livesoft »

aristotelian wrote: Sat Jul 18, 2020 8:03 am When in doubt, split the difference. Sell some and let the rest ride.
livesoft wrote: Fri Jul 17, 2020 6:52 pm When you buy something, you should already have a plan for what you will do for every outcome. So what did you plan to do when you bought these?
What if you now have new information about the stock's valuation?
That should have been in your plan as well.
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Re: When to sell individual stock after run up?

Post by MathIsMyWayr »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm Great thanks BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.

My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
It is worth only about $32k at the time of your posting, a tiny sum for a guy in the 37% bracket. Keep the little crumb for fun and watch.
annu
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Re: When to sell individual stock after run up?

Post by annu »

Not exactly same, but I owned bunch of employer company stocks that hit all time highs february og this year. I sold every week until I was down to 50% left which was my goal. I sold at 40% higher then now, will pay a lot in taxes this year, but still keep 60% or so of the profits......so am happy with it.
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goingup
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Re: When to sell individual stock after run up?

Post by goingup »

Do you like owning individual stocks? I've owned them and don't enjoy the hand-wringing that you're currently going through. Sell, hold, buy more? Always gave me unease.

So, I'd sell and buy index funds.

Some folks love individual stocks and aren't bothered at all by the nagging "sell, hold, or buy more" decisions. You should probably decide what kind of investor you are, and as lifesoft suggests "have a plan for every outcome". :beer
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renegade06
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Re: When to sell individual stock after run up?

Post by renegade06 »

goingup wrote: Sat Jul 18, 2020 9:55 am Do you like owning individual stocks? I've owned them and don't enjoy the hand-wringing that you're currently going through. Sell, hold, buy more? Always gave me unease.

So, I'd sell and buy index funds.

Some folks love individual stocks and aren't bothered at all by the nagging "sell, hold, or buy more" decisions. You should probably decide what kind of investor you are, and as lifesoft suggests "have a plan for every outcome". :beer
I appreciate everyone’s insights. I hold the vast majority of my portfolio in VTI and VXUS, but I keep about 10% for “fun money” to invest in innovation stocks in tech and biotech. So far, I’ve been good and “picking” some good names, but when to get out is hard for me to figure out. I’ll take some $$ off the table and plow it into VTI/VXUS.... I need to increase my bond allocation anyway, so that’s probably a good use for the profit on this investment.
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Re: When to sell individual stock after run up?

Post by RocketShipTech »

burritoLover wrote: Sat Jul 18, 2020 8:50 am Any stocks that have been run up massively during the COVID crisis as COVID plays, especially those that have hit all-time highs recently, I would get rid off ASAP. Once we have a vaccine and things are back to normal, these are going to take a big hit IMO. Take the tax hit as a year from now you might be wishing you did.
Or not:

https://www.sfchronicle.com/health/arti ... 414533.php
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Re: When to sell individual stock after run up?

Post by burritoLover »

"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
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Re: When to sell individual stock after run up?

Post by CurlyDave »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm
...My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
I have a different take on this than many here.

Even Jack Bogle wasn't against having some small amount of one's portfolio in a "fun money" category. From memory, up to 5% was OK. So, just consider this your fun money and enjoy it.

Long before I found this board, I had my serious portfolio that I invested in index funds, and my fun money. Then back in 2005, "tragedy" struck. I invested all of my fun money in AAPL. Well, it went up so much that I couldn't sell because of the tax situation, good bye fun money. So far, DW and I have bought 4 cars, 2 house down payments for kids, my daughter's college education, and we are paying for private school for our grandkids from that AAPL. And we still have 90% of it left. We give stock for most of our charitable contributions -- huge tax advantages.

Where I differ on fun money is what happens when that 5% grows to 10% or more of a portfolio? Well, I say let it ride. I only count it as the initial 5%. But, if you lose it, no dipping into the main portfolio to replenish the fun money, it is gone. OTOH, 5% of new contributions can go into the category. All work and no play makes Jack a dull boy. (That is a folk saying, not a reference to Mr. Bogle.)
$=WxTxI
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Re: When to sell individual stock after run up?

Post by $=WxTxI »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm Greetings BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.

My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
In the future create an exit strategy and write it down.

It appears to be a relatively small amount. 181% = 21k. In one stock.

I'm not sure of how much of your portfolio that is.

If the total of your individual stocks is less than 5% of your portfolio I would take the gains = to my initial investment x TSM gain in same period + taxes off table.

You could let the rest ride at the stock market casino having already locked in your initial investment and what it would have gained in TSM.

If it is a larger percentage of your portfolio I would take the gains until I was under 10% of my portfolio. I'm unsure how may idividual stocks you have. If its just a few, go closer to 5%, if say 10 stocks close to 10% portfolio probably fine.

Sample exit strategy for future.

I buy X stock at $10.
1. At 25% gain I sell X percentage
2. At 50% gain I sell percent equal to my initial investment.
3. Continue to take profits on the way up or let it ride.

Have a written strategy and stick with it.

:sharebeer
JonnyB
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Re: When to sell individual stock after run up?

Post by JonnyB »

The standard answer is "If you had the cash value equivalent in your pocket today, would you buy the stock at its current price tomorrow?" If not, you should sell.

Taxes should not bias your decision. You can think of it as having the after-tax cash equivalent in your pocket if that makes it simpler.
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Re: When to sell individual stock after run up?

Post by nisiprius »

livesoft wrote: Fri Jul 17, 2020 6:52 pm When you buy something, you should already have a plan for what you will do for every outcome. So what did you plan to do when you bought these?
+1.

I do a lot of things wrong, but one thing I'm convinced I do right is to keep an investment diary with columns for "Date," "Transaction details," "Summary," "Rationale," and "Future intentions."

This is particularly important if you are dabbling in speculative things like individual stocks.

Watch out for pairs of "contradictory proverbs." There exists one that will reinforce your confirmation bias for whatever you want to do and give you the illusion that you are being wise when really you only remember the one that matches your impulses.

It's up and you want to sell?

"Buy low, sell high."
"Nobody ever went broke taking a profit."
"It's expensive."

It's up and you don't want to sell?

"Cut your losses and let your profits run."
"You're playing with house money now."
"The trend is your friend."

It's down and you want to sell?

"Cut your losses and let your profits run."
"Don't try to catch a falling knife."

It's down and you don't want to sell?

"It's on sale."
"It's only a paper loss."
Last edited by nisiprius on Mon Jul 20, 2020 6:58 am, edited 1 time in total.
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Topic Author
renegade06
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Re: When to sell individual stock after run up?

Post by renegade06 »

$=WxTxI wrote: Sat Jul 18, 2020 12:33 pm
renegade06 wrote: Fri Jul 17, 2020 6:43 pm Greetings BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.

My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
In the future create an exit strategy and write it down.

It appears to be a relatively small amount. 181% = 21k. In one stock.

I'm not sure of how much of your portfolio that is.

If the total of your individual stocks is less than 5% of your portfolio I would take the gains = to my initial investment x TSM gain in same period + taxes off table.

You could let the rest ride at the stock market casino having already locked in your initial investment and what it would have gained in TSM.

If it is a larger percentage of your portfolio I would take the gains until I was under 10% of my portfolio. I'm unsure how may idividual stocks you have. If its just a few, go closer to 5%, if say 10 stocks close to 10% portfolio probably fine.

Sample exit strategy for future.

I buy X stock at $10.
1. At 25% gain I sell X percentage
2. At 50% gain I sell percent equal to my initial investment.
3. Continue to take profits on the way up or let it ride.

Have a written strategy and stick with it.

:sharebeer
Great suggestions - and I will develop a written exit strategy. This one stock is only 1.5% of my portfolio.
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nedsaid
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Re: When to sell individual stock after run up?

Post by nedsaid »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm Greetings BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.

My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
The buy decision is relatively easy, it is the sell decision that is so difficult. There is an old saying on Wall Street about letting winners run. Two things I look at are valuations and future prospects. If it appears that there is excessive optimism in these stocks and that if everything has to go just right to justify the high valuations, then I would sell. But this is much easier said than done. My guess is that there has been a speculative rise in anticipation of a Covid-19 cure, something that may or may not materialize. Do some more digging and re-examine the reason why you bought these in the first place. If you had been looking for the quick score, I would sell. If you bought these as long term investments, I would evaluation this decision carefully. As I said, the sell decision is a difficult one.
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renegade06
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Re: When to sell individual stock after run up?

Post by renegade06 »

nedsaid wrote: Sat Jul 18, 2020 8:20 pm
renegade06 wrote: Fri Jul 17, 2020 6:43 pm Greetings BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.

My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
The buy decision is relatively easy, it is the sell decision that is so difficult. There is an old saying on Wall Street about letting winners run. Two things I look at are valuations and future prospects. If it appears that there is excessive optimism in these stocks and that if everything has to go just right to justify the high valuations, then I would sell. But this is much easier said than done. My guess is that there has been a speculative rise in anticipation of a Covid-19 cure, something that may or may not materialize. Do some more digging and re-examine the reason why you bought these in the first place. If you had been looking for the quick score, I would sell. If you bought these as long term investments, I would evaluation this decision carefully. As I said, the sell decision is a difficult one.
Thanks, Nedsaid! The stock is actually a genetic testing company - I believe that technology is the future, particularly for early detection of cancer. It’s trading slightly above its “average price target” according to Yahoo finance. I just have no idea whether this company can double or triple in size or stay flat. I had the experience or working at a successful biotech, but we had some big stock swings - like 10-15% in a day - with no news. In reading some of the analyst coverage, I realized that they had no idea what was actually going on at the company. I lost all faith in these analysts and their price targets and projections.
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Re: When to sell individual stock after run up?

Post by nedsaid »

renegade06 wrote: Sat Jul 18, 2020 8:38 pm
nedsaid wrote: Sat Jul 18, 2020 8:20 pm
renegade06 wrote: Fri Jul 17, 2020 6:43 pm Greetings BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.

My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
The buy decision is relatively easy, it is the sell decision that is so difficult. There is an old saying on Wall Street about letting winners run. Two things I look at are valuations and future prospects. If it appears that there is excessive optimism in these stocks and that if everything has to go just right to justify the high valuations, then I would sell. But this is much easier said than done. My guess is that there has been a speculative rise in anticipation of a Covid-19 cure, something that may or may not materialize. Do some more digging and re-examine the reason why you bought these in the first place. If you had been looking for the quick score, I would sell. If you bought these as long term investments, I would evaluation this decision carefully. As I said, the sell decision is a difficult one.
Thanks, Nedsaid! The stock is actually a genetic testing company - I believe that technology is the future, particularly for early detection of cancer. It’s trading slightly above its “average price target” according to Yahoo finance. I just have no idea whether this company can double or triple in size or stay flat. I had the experience or working at a successful biotech, but we had some big stock swings - like 10-15% in a day - with no news. In reading some of the analyst coverage, I realized that they had no idea what was actually going on at the company. I lost all faith in these analysts and their price targets and projections.
What are the earnings for the company? What are the prospects for future earnings? What competition is there for this company? Does the company have a competitive advantage? As Morningstar would say, does the company have no moat, a narrow moat, or a wide moat? Peter Lynch often talked about developing a narrative for the company. What is your narrative? I suspect it centers on the company's intellectual property. Is it a quick score? Is it a long term investment? Does the company have good management and a good plan for growth? Pretty much I am asking if there is any there there. What is behind the rise in the stock price? Speculation or solid prospects going forward? Also take a look at the financial position of the company.

My sinking feeling is that the smaller Bio-Tech stocks are buoyed by optimism about a Covid-19 cure. Lots of sizzle but maybe no steak. Is this stock all about Covid-19 or will the technology be applicable to other things? If the company does genetic testing, that tells me there could be wide application for the technology. Look at the narrative you developed for the stock and see if it still makes sense. If the narrative still makes sense, hold. If the narrative no longer makes sense, sell.
A fool and his money are good for business.
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Re: When to sell individual stock after run up?

Post by tiburblium »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm Greetings BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.

My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
What about purchasing a long put option to hedge your position until it would be a long term captial gain? If the premium is less than the difference between your long term and short term rate, seems worth considering
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Re: When to sell individual stock after run up?

Post by Harry Livermore »

nedsaid wrote: Sat Jul 18, 2020 8:55 pm
What are the earnings for the company? What are the prospects for future earnings? What competition is there for this company? Does the company have a competitive advantage? As Morningstar would say, does the company have no moat, a narrow moat, or a wide moat? Peter Lynch often talked about developing a narrative for the company. What is your narrative?
Ned already made the point that I was going to mention. Unlike indexing, individual stock selection needs to include fundamental analysis AND a narrative. If it's nothing of more substance than, say, "Biotech because COVID" you may have just gotten lucky and might want to sell. If it's "strong track record of results and earnings increases, 6 new formulations about to come to market, consensus is X, insiders buying" then you have a solid declaration of what makes the purchase of the stock appealing. As you periodically review each of your holdings, look at the narrative and see what, if anything, has changed. Look at the fundamentals too. Maybe growth is slowing. Maybe 2 of the 6 formulations are duds. Whatever.
If you are worried about a fast downturn in the company's price (because stuff like that happens all the time and you have a life to live and are not looking at price action all day every day) consider tiburblium's suggestion of a protective put. You don't even need to protect the entirety of your position; you can buy enough to keep your downside to an acceptable range.
Of course, if you are worried it will go to zero, sell it tomorrow morning, as others have said...
Cheers
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Re: When to sell individual stock after run up?

Post by wander »

renegade06 wrote: Sat Jul 18, 2020 10:21 am .... but I keep about 10% for “fun money” to invest in innovation stocks in tech and biotech....
Enjoy the ride! If it is for fun, then keep it going for more fun.
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Re: When to sell individual stock after run up?

Post by youngpleb »

I had one oil stock I picked up in March go about 6x in the span of 2 months. I was amazed, but didn’t sell. Since then, it has lost half its value and is back to a “measly” 3x return. I can’t sell it now though because I’ve seen where it can go lol. It was all fun money anyways, so I’m just letting it ride. It does make me feel stupid looking back and seeing how I didn’t sell after returns like that. In the moment though, it’s just like “wow! I wonder how much higher it will go!”

So my advice is to definitely sell if you hit 6x :happy
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Re: When to sell individual stock after run up?

Post by JonnyDVM »

I prefer to wait a year to not take the short term cap gains hit. But there’s nothing wrong with taking your money off the table when you’ve won the bet. Don’t let taxes dictate what you do. If you’re satisfied, take the money and remove the stock from your watch list so you won’t torture yourself with the “what if’s” on how it does going forward.
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Re: When to sell individual stock after run up?

Post by grabiner »

Another issue: how much of your portfolio is in a single stock, or a single industry? If there is too much, you are taking extra risk. If a single stock is less than 5% of your portfolio, holding the stock rather than a diversified portfolio doesn't add that much to your portfolio risk. If it is more than 10%, you may want to take even short-term gains to trim your risk level, as a single piece of bad news about one company could wipe out 5% of your portfolio. Otherwise, waiting for a long-term gain may be worthwhile, assuming that it makes a difference. (If you have carryover capital losses which exceed your gains, it doesn't matter much whether you take long-term or short-term gains.)

Similarly for overweighting in one industry, including your holdings in the rest of your portfolio. If you hold a lot of individual tech stocks, and also hold a tech-heavy index such as QQQ or a growth index, you want to trim your tech exposure one way or another. You could weight away from tech by changing your IRA holdings; with a growth bias in a taxable account, switch from an S&P 500 or total-market index to a value index.
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renegade06
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Re: When to sell individual stock after run up?

Post by renegade06 »

grabiner wrote: Sun Jul 19, 2020 9:42 am Another issue: how much of your portfolio is in a single stock, or a single industry? If there is too much, you are taking extra risk. If a single stock is less than 5% of your portfolio, holding the stock rather than a diversified portfolio doesn't add that much to your portfolio risk. If it is more than 10%, you may want to take even short-term gains to trim your risk level, as a single piece of bad news about one company could wipe out 5% of your portfolio. Otherwise, waiting for a long-term gain may be worthwhile, assuming that it makes a difference. (If you have carryover capital losses which exceed your gains, it doesn't matter much whether you take long-term or short-term gains.)

Similarly for overweighting in one industry, including your holdings in the rest of your portfolio. If you hold a lot of individual tech stocks, and also hold a tech-heavy index such as QQQ or a growth index, you want to trim your tech exposure one way or another. You could weight away from tech by changing your IRA holdings; with a growth bias in a taxable account, switch from an S&P 500 or total-market index to a value index.
For this particular stock, it’s only about 1.5% of my portfolio. You do raise another issue about overweighting... I am 27% technology (compared to S&P at 20%) and 19% healthcare (compared to 15% in the S&P)... so perhaps I need to trim that - especially technology.
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Re: When to sell individual stock after run up?

Post by renegade06 »

renegade06 wrote: Sun Jul 19, 2020 10:06 am
grabiner wrote: Sun Jul 19, 2020 9:42 am Another issue: how much of your portfolio is in a single stock, or a single industry? If there is too much, you are taking extra risk. If a single stock is less than 5% of your portfolio, holding the stock rather than a diversified portfolio doesn't add that much to your portfolio risk. If it is more than 10%, you may want to take even short-term gains to trim your risk level, as a single piece of bad news about one company could wipe out 5% of your portfolio. Otherwise, waiting for a long-term gain may be worthwhile, assuming that it makes a difference. (If you have carryover capital losses which exceed your gains, it doesn't matter much whether you take long-term or short-term gains.)

Similarly for overweighting in one industry, including your holdings in the rest of your portfolio. If you hold a lot of individual tech stocks, and also hold a tech-heavy index such as QQQ or a growth index, you want to trim your tech exposure one way or another. You could weight away from tech by changing your IRA holdings; with a growth bias in a taxable account, switch from an S&P 500 or total-market index to a value index.
For this particular stock, it’s only about 1.5% of my portfolio. You do raise another issue about overweighting... I am 27% technology (compared to S&P at 20%) and 19% healthcare (compared to 15% in the S&P)... so perhaps I need to trim that - especially technology.
Actually - I just looked and VTSAX is 26.4% technology - so I’m not as out of whack as I thought.
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Re: When to sell individual stock after run up?

Post by geerhardusvos »

renegade06 wrote: Sat Jul 18, 2020 10:21 am
goingup wrote: Sat Jul 18, 2020 9:55 am Do you like owning individual stocks? I've owned them and don't enjoy the hand-wringing that you're currently going through. Sell, hold, buy more? Always gave me unease.

So, I'd sell and buy index funds.

Some folks love individual stocks and aren't bothered at all by the nagging "sell, hold, or buy more" decisions. You should probably decide what kind of investor you are, and as lifesoft suggests "have a plan for every outcome". :beer
I appreciate everyone’s insights. I hold the vast majority of my portfolio in VTI and VXUS, but I keep about 10% for “fun money” to invest in innovation stocks in tech and biotech. So far, I’ve been good and “picking” some good names, but when to get out is hard for me to figure out. I’ll take some $$ off the table and plow it into VTI/VXUS.... I need to increase my bond allocation anyway, so that’s probably a good use for the profit on this investment.
Why do you need to increase your bond allocation?
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Re: When to sell individual stock after run up?

Post by renegade06 »

geerhardusvos wrote: Sun Jul 19, 2020 10:16 am
renegade06 wrote: Sat Jul 18, 2020 10:21 am
goingup wrote: Sat Jul 18, 2020 9:55 am Do you like owning individual stocks? I've owned them and don't enjoy the hand-wringing that you're currently going through. Sell, hold, buy more? Always gave me unease.

So, I'd sell and buy index funds.

Some folks love individual stocks and aren't bothered at all by the nagging "sell, hold, or buy more" decisions. You should probably decide what kind of investor you are, and as lifesoft suggests "have a plan for every outcome". :beer
I appreciate everyone’s insights. I hold the vast majority of my portfolio in VTI and VXUS, but I keep about 10% for “fun money” to invest in innovation stocks in tech and biotech. So far, I’ve been good and “picking” some good names, but when to get out is hard for me to figure out. I’ll take some $$ off the table and plow it into VTI/VXUS.... I need to increase my bond allocation anyway, so that’s probably a good use for the profit on this investment.
Why do you need to increase your bond allocation?
I’m at 13% bonds now, which is probably too low for my age. I’m 44 years old and feel like I should be at least at 20% just to make sure that I’m not taking too much risk. Most of my bonds are currently in the TSP G fund.
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Re: When to sell individual stock after run up?

Post by mgchan »

Here is my opinion. Note that I am not a typical visitor to the forum as 100% of my non real estate investments under my control (that is, outside of my wife's company 401k and ESPP) are in a focused portfolio of individual stocks and I stay essentially 100% invested at all times.

When you buy a stock you are doing it either as an investment or a trade. An investment is based on a fundamental belief that the company (and by proxy its share price) will become intrinsically more valuable over time. So the price will go up because of business performance. Almost any other movement between material actions and news (earnings reports) is simply volatility. Occasionally you might really suspect a bubble, like when a stock price goes up 3-5x without a material change in the company, which might make you reconsider owning the stock. This should essentially be when you decide you wouldn't buy the stock at that price. But when it's rising in concert with business performance (earnings/revenue growth, dividend growth, or technical achievements indicating an evolving story) then I never sell because it went up. Only when it becomes too much of my portfolio for comfort or conviction. Market sentiment may increase or decrease the stock price and valuation based on its whims, I don't pay attention to that.

If you're buying a stock as a trade, you're just hoping market sentiment will increase the stock price without a change in the business (or whatever asset). So your goal is simply to see the stock price go up, then you should sell when that happens.

I pay very little attention to taxes unless it is very close to a year (less than a month). If you're thinking of selling and the gains are high enough that the short vs. long term distinction is important, there's likely too much volatility in the stock to just hold on to something for a month that you don't think is worth owning.

In your case, it sounds like you generally believe in the company but honestly I don't think you know enough about your investment to warrant investing in individual stocks. It is not enough to like the story or general technology. I'm not sure if the stock in question is NVTA or something else but you should be able to tell someone what they do, what the growth rate is, growth prospects, addressable market, future levers for growth, and so on. Not that it's trading above Yahoo!'s estimated range. Like a real estate agent should be able to give the property taxes, HOA fees, school systems, and so on rather than just the number of bedrooms/baths and the Zillow Zestimate. For instance with Square you should know what their revenue growth rate is, how much of that is subscription revenue versus transaction revenue, the overall trends, what kind of exposure they have to credit risk, how the Cash app is doing. You can do fine just investing in big companies that you know like Apple, Microsoft, Netflix, etc. But that is where you either risk losing a lot because you don't see disruption coming (usually manifested by a gradual erosion of business metrics) or you simply can't risk enough to make it worth your time to even pay attention. You might as well index if you are going to be investing less than 3% in any individual stock. Only financial professionals can keep up with 30+ companies. 1.5% of your portfolio isn't worth your time worrying about. If it's just for fun then it doesn't really matter either.

You do have it right about analysts. Occasionally some are good but many are just kids out of college assigned a task of analyzing a bunch of companies. They kind of follow each other, have a general knowledge of the companies, and change price targets to encourage transactions. It doesn't hurt to have all the analysts bullish, but I don't put any faith in what they have to say.
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Re: When to sell individual stock after run up?

Post by steve321 »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm Greetings BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.

My question is - when do I sell? I have no reason to believe that this biotech will plummet - it very well may continue to go up. If I sell a short term gain, I will have to pay 37% Federal taxes on it. Is it worth to just take profits now or maybe wait until the one year mark when it would become a long term gain? My plan is to reinvest this $$$ into VTI and VXUS. Thanks!
One way to tackle the situation might be to look at price momentum. Another (more complex) is using the Log-Periodic Power Law (you can google it or Didier Sornette who uses it)
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Re: When to sell individual stock after run up?

Post by Boglegrappler »

I'm not sure this will help much, but imagining that you held the S&P500 index in the form of individual stocks, properly weighted, instead of the index fund.

At any point in time, you might have some stocks that have "run up" a great deal over some relatively short period----say one or two years. Would it make sense to consider selling them?

A lot of this depends on what others have pointed out. The issue is what are the long term prospects of your company regarding increasing sales and earnings, and withstanding competition for those.

Good luck.
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Re: When to sell individual stock after run up?

Post by aqan »

It’s a gamble and my personal experience has been - doomed if you do and doomed if you don’t. Earlier in the year I sold tesla for 300% gain and I was happy that I did until I wasn’t:)

Roll the dice, use your judgement, market research, or ask around - the final answer us that no one knows. You just do what you’re comfortable with.
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Re: When to sell individual stock after run up?

Post by nisiprius »

Harry Livermore wrote: Sun Jul 19, 2020 7:30 am...Unlike indexing, individual stock selection needs to include fundamental analysis AND a narrative...
"Castles in the air, but with a firm foundation."--Burton Malkiel. I love that phrasing.

A Random Walk Down Wall Street was really an eclectic book on assorted topics, and the early editions contained extensive discussions of stock-picking, or, as he phrased it "selecting common stocks." He summarized his philosophy in the phrase, "Castles in the air, but with a firm foundation," a paraphrased line from a play by Henrik Ibsen, "The Master Builder."

He also said
Taking a random walk is really a very dull way to explore Wall Street and its excitements, and the game of speculating and trying to beat the crowd is too too much fun for many of us to give it up. Being one who has been smitten with the gambling urge since birth, I can well understand the compulsion many investors have to continue to try to pick real winners and their total lack of interest in a system that can produce only so-so investment results. For such investors, this last chapter demonstrates how a sensible and relatively low-risk strategy may produce substantial rewards. This method has worked splendidly for me. I hope it can work for you, too.
The book became famous for a different part, which presented the idea, stunning in 1973:
What we need is a no-load, minimum management-fee mutual fund that simply buys the hundreds of stocks making up the broad stock-market averages and does no trading from security to security in an attempt to catch the winners. Whenever below-average performance on the part of any mutual fund is noticed, fund spokesmen are quick to point out "You can't buy the averages." It's time the public could.
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Re: When to sell individual stock after run up?

Post by nigel_ht »

Call_Me_Op wrote: Sat Jul 18, 2020 8:10 am
renegade06 wrote: Fri Jul 17, 2020 6:43 pm Great thanks BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.
As soon as possible, as you are taking uncompensated risk by holding it.
What uncompensated risk? The compensation is the potential for growth.

I TLH’d in March so I had room for short term gains and cashed out my original principal for CCL and RCL. Now what’s left is just the gains. If I didn’t I’d just hold till they were long term as they are roughly where they should be today.
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Re: When to sell individual stock after run up?

Post by Hector »

I would sell individual stock or fund in taxable only when I need money OR when I can have capital loss. When selling, I would sell stock/fund with lowest capital gain.
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Re: When to sell individual stock after run up?

Post by renegade06 »

mgchan wrote: Mon Jul 20, 2020 1:44 am Here is my opinion. Note that I am not a typical visitor to the forum as 100% of my non real estate investments under my control (that is, outside of my wife's company 401k and ESPP) are in a focused portfolio of individual stocks and I stay essentially 100% invested at all times.

When you buy a stock you are doing it either as an investment or a trade. An investment is based on a fundamental belief that the company (and by proxy its share price) will become intrinsically more valuable over time. So the price will go up because of business performance. Almost any other movement between material actions and news (earnings reports) is simply volatility. Occasionally you might really suspect a bubble, like when a stock price goes up 3-5x without a material change in the company, which might make you reconsider owning the stock. This should essentially be when you decide you wouldn't buy the stock at that price. But when it's rising in concert with business performance (earnings/revenue growth, dividend growth, or technical achievements indicating an evolving story) then I never sell because it went up. Only when it becomes too much of my portfolio for comfort or conviction. Market sentiment may increase or decrease the stock price and valuation based on its whims, I don't pay attention to that.

If you're buying a stock as a trade, you're just hoping market sentiment will increase the stock price without a change in the business (or whatever asset). So your goal is simply to see the stock price go up, then you should sell when that happens.

I pay very little attention to taxes unless it is very close to a year (less than a month). If you're thinking of selling and the gains are high enough that the short vs. long term distinction is important, there's likely too much volatility in the stock to just hold on to something for a month that you don't think is worth owning.

In your case, it sounds like you generally believe in the company but honestly I don't think you know enough about your investment to warrant investing in individual stocks. It is not enough to like the story or general technology. I'm not sure if the stock in question is NVTA or something else but you should be able to tell someone what they do, what the growth rate is, growth prospects, addressable market, future levers for growth, and so on. Not that it's trading above Yahoo!'s estimated range. Like a real estate agent should be able to give the property taxes, HOA fees, school systems, and so on rather than just the number of bedrooms/baths and the Zillow Zestimate. For instance with Square you should know what their revenue growth rate is, how much of that is subscription revenue versus transaction revenue, the overall trends, what kind of exposure they have to credit risk, how the Cash app is doing. You can do fine just investing in big companies that you know like Apple, Microsoft, Netflix, etc. But that is where you either risk losing a lot because you don't see disruption coming (usually manifested by a gradual erosion of business metrics) or you simply can't risk enough to make it worth your time to even pay attention. You might as well index if you are going to be investing less than 3% in any individual stock. Only financial professionals can keep up with 30+ companies. 1.5% of your portfolio isn't worth your time worrying about. If it's just for fun then it doesn't really matter either.

You do have it right about analysts. Occasionally some are good but many are just kids out of college assigned a task of analyzing a bunch of companies. They kind of follow each other, have a general knowledge of the companies, and change price targets to encourage transactions. It doesn't hurt to have all the analysts bullish, but I don't put any faith in what they have to say.
Thanks for your thoughts - you make some great points, which I appreciate. And yes, the stock is NVTA. I believe in the technology but have no idea if they will double/triple/quadruple in value from here, get acquired, fall back to $20, etc.
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Re: When to sell individual stock after run up?

Post by mgchan »

renegade06 wrote: Mon Jul 20, 2020 2:02 pm
mgchan wrote: Mon Jul 20, 2020 1:44 am Here is my opinion.
snip
Thanks for your thoughts - you make some great points, which I appreciate. And yes, the stock is NVTA. I believe in the technology but have no idea if they will double/triple/quadruple in value from here, get acquired, fall back to $20, etc.
It's admittedly been about a year since I looked into NVTA. I do think the overall trend toward genetic testing and personalized medicine will be very strongly positive in the next 5-10 years. What I remembered about NVTA is that their losses were growing just as fast as their revenue which is always a concern. I don't know whether they're doing anything with COVID but personally I don't see the medical aspects of COVID as a long term driver for any company. Genetic testing also a race to the bottom in terms of cost, and there are a lot of other companies that might be able to compete. But it's also probably true that if they got in serious financial trouble they would be bought out by big pharma or someone like Illumina, so maybe there's some protection from going to zero.

As I said, if your initial investment thesis is that NVTA has a long runway of success and you believe that at some point they will be able to convert that into profit, then nothing has really changed and I think it's reasonable to just keep it, or sell enough so you can sleep well at night and just root for them with a small financial interest. At a 1.5% allocation (and presumably more like a 0.5% original risk) you can kind of keep it just for fun and if it does well, use those funds for fun stuff.
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Re: When to sell individual stock after run up?

Post by JoeRetire »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm My question is - when do I sell?
Sell as soon as the stock has reached its peak - the day before it starts to decline. Seems like the obvious solution...

The use the proceeds to bet on your next favorite market timing stock gamble.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
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Re: When to sell individual stock after run up?

Post by KlangFool »

OP,

1) I only gamble on the stock that has the possibility of going up to 10X to 20X.

2) I sell 50% of my holding when the stock goes up by 3X.

3) The rest is the dealer's money. I could lose it all and it won't matter. I may use (2) again.

KlangFool
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Re: When to sell individual stock after run up?

Post by bloom2708 »

Just understand that your good luck is not quite as good as you think because (short term) you owe your top marginal tax rate + state tax. If you sell short term, the income is added on to the top. So be sure to set aside $10k for tax and expect to owe more than usual at tax time.

You could bump your extra withholding on your W4 for Fed and State.

It isn't a life changing amount. I would sell it all, pay the tax and just skip it. So you were good at timing this time. Next time might not be so kind. I guess if the next time is still in 2020 you could go for some losses to offset your short term gains. :D
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Re: When to sell individual stock after run up?

Post by Ged »

renegade06 wrote: Fri Jul 17, 2020 6:43 pm Greetings BH community.... wondering your thoughts about when to sell an individual stock that has had a great run.

During the market plummet in March, I bought a handful of tech and biotech stocks. In one of my favorite biotech stocks, I have a 181% gain and my total gain is $21k (short term). I have a couple of other stocks (like Square SQ) that also have run up quite nicely.
I would sell on market open tomorrow.
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