136 - Selling Stocks for Value Investors (Part 1: Strategy Matters)

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Mental Models discussed in this podcast:

• Second-Order Effects
• Mean Reversion
• Factor Investing

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Show Outline

• Selling Series
  • A lot of time is spent on buying stocks. Yet, almost just as important, if not more is knowing when to sell stocks. 
  • I find this area relatively underexplored, so I want to begin a long-term series on selling stocks from the framework of a value investor. 
  • Previously talked about selling in a single episode on Ep. 106
• Today’s focus: Strategy matters
  • There is no one-size fits all approach
  • How you buy stocks will influence how you sell them
  • Your portfolio allocation strategy will matter
  • THe number of stocks you review in a year will matter
  • Whether you plan to own a cash position or not will matter.
• Excluded from this series:
  • Won’t be discussing momentum investing
  • Won’t be discussing trading or technical analysis investing (except as a marginal part of value investing when relevant)
  • Entire focus assumes that you are a value investor of some sort (whether deep value, compounder, graham value, quality, etc…)
• Deep Value:
  • Buy at 2/3rds of value and sell at “full price”
• Compounders:
  • You want to hold for a long-time. 
  • Sell when compounding ends, plateaus or you were wrong
• Net-Nets
  • Hold a year then reassess
• Waterfall Stocks: 
  • Hold so long as dividend yield is sufficient to provide target return
• Dividend Growth Investing:
  • Buy companies that pay dividends and grow them and sell them when they cut or eliminate their dividends
• Buy and Hold
  • “Never sell”
  • Works for a subset of stocks
  • Tends to overlap well with compounders and Dividend Growth investing