Wednesday, May 5, 2010

When to sell

The market got hammered yesterday. Time to look for bargains, those companies that are getting slammed today for no particular reason. Sirius XM (SIRI) is down about 8% and they announced positive earnings. Booyah. Bought some at $1.15. I owned them earlier this year and got out at about $1.00. They kept rising, going above $1.20, but got hit today. I expect them to hit $1.20 again. This brings up the issue of when to sell. As you can tell from some of my returns, I haven't figured that out yet. When I sold Sirius earlier this year, they had doubled in about a month. Then they dipped a little so I jumped out. Hindsight is 20/20, I didn't know if the rise was sustainable so I took the money and ran. Same thing with Vonage (VG) a few months earlier, they announced their global flat fee calling plan, the stock took off and I got a nice bump. In general, I don't have a rule about when to get out. I've read that some investors will sell after a certain return, say 7% and will also sell if the stock drops that same amount. This seems like a good and prudent philosophy, but I don't like to set an random return % and sell. If I feel like a stock has no more upside, I will sell it. My return at that point could be 5%, 20% or 120%. When the upside is gone, so am I. On the downside, I have the same philosophy. I bought American Express (AXP) at about $26/share. They dropped to $13/share and I bought a bunch more. They're now around $46/share. I didn't think they were going belly up and the low price was a buying opportunity.
I also bought Leapfrog Enterprises (LF), they make toys like the Leapad. Been watching them off and on for a year, today they missed the ANALYSTS PREDICTIONS by a few pennies but revenue is up 42% and they got slammed, lost 18% on their stock price. I think they will recover that. No time window, may take a month, may take 6.

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