My Selling Policy

The main aim of my selling policy is to maximise profits and to minimise losses. The policy also recognises that not every investment decision is going to be a roaring success.

Stuff happens! ... and as a result situations may arise where selling is the best policy.

I use the following rules to be able to handle those circumstances and to avoid becoming emotionally overwhelmed.

I sell whenever losses on a particular purchase reach 2% of total portfolio value unless there is a general market downturn not related to that stock.

This is a capital protection measure. Holding on can result in a loss of opportunity to invest in more profitable investments.

Remember Warren Buffett's first rule - DON"T LOSE MONEY!

It is his second rule as well!

I sell if a share does not generate an internal rate of return (IRR) of at least 5% after two years. I recognise that the funds can be better utilised elsewhere.

I sell if a share does not generate an IRR of at least 10% after three years, or drops below 10% at some later stage. I recognise that something has eventuated that has hindered the expected returns that I initially envisaged.

Certainly I avoid selling for profit within one year to minimise capital gains tax. How much this is a problem for you will depend on your tax situation.

I commence a staggered reduction of overweight holdings in profitable shares when the overall share market P/E ratio and/or the P/E ratio of particular shares have reached or significantly breached their historical highs. I obtain this information from data on my online broker's website.

I then have sufficient capital to take advantage of bargains following a market downturn.

Also, by undertaking a staggered reduction in my portfolio when the market is overheating, I can take more profits by further selling if the market continues to rise.

This recognises that I can't time the top (and bottom) of market cycles.

NOBODY RINGS A BELL!!

Having this selling policy in place helps me to avoid two types of situations. The first is where there are sharp up or down movements in the market that may cause me to panic.

The second, and less recognised, is when there is very little action in the market - and I am looking for some!

Return from My Selling Policy to Investment Plan