Paging the opposite of Jim Cramer.
May 23, 2013 1:01 PM Subscribe
I own stock in two companies. One set I inherited, the other I bought because I follow the industry and gambled on my insight. Now they're both at 52-week highs, with a 30% return on the former (as of the day I inherited it, at least) and a 100% return on the latter. The portfolio worth is about to hit $10K. The problem is that I have no idea what I'm doing and I have no idea when or if I should cash out. Everyone I know who has investments has them in index funds managed by someone else. I don't know any professional traders or hobby investors. I do not have the time to learn finance, and I can't imagine a decent financial adviser would be a worthwhile investment considering the portfolio worth. What to do?
FYI: I'm not looking for stock tips, just advise on what people in my situation do in these cases.
FYI: I'm not looking for stock tips, just advise on what people in my situation do in these cases.
I don't understand what you're asking. Are you asking if you should sell, or how to sell, or both?
posted by DarlingBri at 1:07 PM on May 23, 2013
posted by DarlingBri at 1:07 PM on May 23, 2013
It's up to you actually.
I worked at MCI and we were compensated and given bonuses in stock. After the merger with WorldCom, the stock hit a historic high of $93. It was all tied up in my retirement plan, but if I had cashed out then, I'd be close to a millionaire.
As it was, things were looking great with no end in site. So, as long as I worked there, I kept it in play. (I didn't have any other choice.) In about a year, the stock dropped pretty significantly. Then this happened.
Then it was worth nothing.
Oh well. Easy come, easy go.
No one has a crystal ball. Playing the stock market like this is a gamble. It's like doing a parlay or a Quinella.
You can let it ride and see where it takes you. If it tanks, how much are you really out?
Or cash out and enjoy the proceeds.
The thing that keeps people in too long is the fear of regret.
I say split the difference. Cash out of half of it, let the rest do what it do.
posted by Ruthless Bunny at 1:09 PM on May 23, 2013
I worked at MCI and we were compensated and given bonuses in stock. After the merger with WorldCom, the stock hit a historic high of $93. It was all tied up in my retirement plan, but if I had cashed out then, I'd be close to a millionaire.
As it was, things were looking great with no end in site. So, as long as I worked there, I kept it in play. (I didn't have any other choice.) In about a year, the stock dropped pretty significantly. Then this happened.
Then it was worth nothing.
Oh well. Easy come, easy go.
No one has a crystal ball. Playing the stock market like this is a gamble. It's like doing a parlay or a Quinella.
You can let it ride and see where it takes you. If it tanks, how much are you really out?
Or cash out and enjoy the proceeds.
The thing that keeps people in too long is the fear of regret.
I say split the difference. Cash out of half of it, let the rest do what it do.
posted by Ruthless Bunny at 1:09 PM on May 23, 2013
You sell the stocks and put them in indexed funds. If you need help with the mechanics of that, check with the institution through which you hold the stocks or ask your friends who hold index funds. (A little nitpick: "indexed funds" cannot be "managed by someone else". "Index funds" - which just hold a little bit of everything - are the opposite of "managed funds," in which a manager tries to pick good stocks.)
posted by Mr.Know-it-some at 1:10 PM on May 23, 2013 [1 favorite]
posted by Mr.Know-it-some at 1:10 PM on May 23, 2013 [1 favorite]
I assume this money is money you can afford to lose. If it isnt sell out and put it in cash. If you can afford to lose any or all of it use that money to play the market and learn a new skill.
posted by BenPens at 1:11 PM on May 23, 2013
posted by BenPens at 1:11 PM on May 23, 2013
I say cash it out and move the money to index funds. You already say you don't know what you're doing so take the money on the table and put it with someone who does it for a living. You're not going to learn how to successfully play the market because almost nobody does, long-term.
posted by ghharr at 1:17 PM on May 23, 2013
posted by ghharr at 1:17 PM on May 23, 2013
Since you say you don't have the time to learn, cash out and stick 'em in index funds. 10k isn't insignificant.
posted by fnerg at 1:19 PM on May 23, 2013 [1 favorite]
posted by fnerg at 1:19 PM on May 23, 2013 [1 favorite]
A lot of the early investing advice I got was all on the buy side. Buy something, hold it for a long time, then when you sell it, profit! But noone really talked about when to sell it.
For individual stocks, the company has a theoretical worth, and you can come up with a way to value that company compared to that theoretical worth. If the stock exceeds that worth, it would be a good time to sell, and if it's less than that, a good time to buy. BUT, add to that worth that you're buying and selling from all the other dummies and smart guys in the market, and you want to buy it when they're all going to eventually realize it's undervalued, and sell it before they eventually realize it's overvalued. That part of the game is why market timing is basically impossible.
To minimize your risk in losing all your gains, you can take some profits from the stocks now. How do you figure out how much? I do portfolio balancing -- with 80% of my portfolio stocks, and 20% bonds. Once a year I rebalance that portfolio. so if stocks went way up, I'd sell some, put the profits in bonds. If stocks were way low, presumably it's a good buying opportunity, I'd sell some of my bonds and buy more stocks.
posted by garlic at 1:20 PM on May 23, 2013
For individual stocks, the company has a theoretical worth, and you can come up with a way to value that company compared to that theoretical worth. If the stock exceeds that worth, it would be a good time to sell, and if it's less than that, a good time to buy. BUT, add to that worth that you're buying and selling from all the other dummies and smart guys in the market, and you want to buy it when they're all going to eventually realize it's undervalued, and sell it before they eventually realize it's overvalued. That part of the game is why market timing is basically impossible.
To minimize your risk in losing all your gains, you can take some profits from the stocks now. How do you figure out how much? I do portfolio balancing -- with 80% of my portfolio stocks, and 20% bonds. Once a year I rebalance that portfolio. so if stocks went way up, I'd sell some, put the profits in bonds. If stocks were way low, presumably it's a good buying opportunity, I'd sell some of my bonds and buy more stocks.
posted by garlic at 1:20 PM on May 23, 2013
I'm assuming from the information not mentioned in the OP that this is not currently in a retirement account. I'd speak to your tax person to find out the implications of different versions of what you might want to do (such as suggested above) and do whatever you choose based on that, aware of the tax implications of such a choice.
Were it me, I'd see if I could move it from a brokerage account to an IRA or Roth IRA account as-is, that is, the stocks directly with no buying or selling transactions. Then decide what to do with the stock(s).
I have both an IRA trading account and a Roth IRA trading account, and overall the portfolio is up a bit more significantly than yours; I'm considering selling about 1/3 of the stock I've "doubled" on and keeping the proceeds as cash to buy the next thing I've got an eye on.
On the other hand, I've got a 401K to roll over that's worth even more than the stock account (been working a LONG time and stuck to indexed funds) and I'm having kittens trying to get with my tax guy to find out the best tax option for the money (roll into current 401k and buy index funds, move to Roth IRA Stock account, Regular IRA account, something with treasury or cd laddering ... I don't want to mess with the bulk of my pitiful savings on the open stock market, frankly.
posted by tilde at 1:20 PM on May 23, 2013 [1 favorite]
Were it me, I'd see if I could move it from a brokerage account to an IRA or Roth IRA account as-is, that is, the stocks directly with no buying or selling transactions. Then decide what to do with the stock(s).
I have both an IRA trading account and a Roth IRA trading account, and overall the portfolio is up a bit more significantly than yours; I'm considering selling about 1/3 of the stock I've "doubled" on and keeping the proceeds as cash to buy the next thing I've got an eye on.
On the other hand, I've got a 401K to roll over that's worth even more than the stock account (been working a LONG time and stuck to indexed funds) and I'm having kittens trying to get with my tax guy to find out the best tax option for the money (roll into current 401k and buy index funds, move to Roth IRA Stock account, Regular IRA account, something with treasury or cd laddering ... I don't want to mess with the bulk of my pitiful savings on the open stock market, frankly.
posted by tilde at 1:20 PM on May 23, 2013 [1 favorite]
You could sell 80% of the first and 60% of the second, and break ahead of even (cash-in-hand). The remainder of your portfolio would solely be profit (minus fees/commissions).
posted by panmunjom at 1:51 PM on May 23, 2013 [1 favorite]
posted by panmunjom at 1:51 PM on May 23, 2013 [1 favorite]
It's too late to sell them today, but it might be sensible to sell them and invest in no-load or low-load mutual funds, maybe through a discount broker such as Schwab or Vanguard.
If you bought them via a high-commission local broker, you can move them to a different brokerage and sell them there.
If you keep them in stocks the value may increase or it could go down, but as your best option for deciding to sell is to ask a question on the green without specifying the stocks, and you have no idea what you are doing, selling to lock in your gains certainly isn't a bad move.
As mentioned above, it is possible to move them to a retirement account without selling them, but without knowing more about your situation it's not possible to make a recommendation on that. Assuming you are in the US, it's worth looking into further.
posted by yohko at 2:10 PM on May 23, 2013
If you bought them via a high-commission local broker, you can move them to a different brokerage and sell them there.
If you keep them in stocks the value may increase or it could go down, but as your best option for deciding to sell is to ask a question on the green without specifying the stocks, and you have no idea what you are doing, selling to lock in your gains certainly isn't a bad move.
As mentioned above, it is possible to move them to a retirement account without selling them, but without knowing more about your situation it's not possible to make a recommendation on that. Assuming you are in the US, it's worth looking into further.
posted by yohko at 2:10 PM on May 23, 2013
A couple of times, when a stock has doubled its value, I sold half of the shares and kept the other half invested. Whether it goes up or down no longer matters. It's free money.
posted by yclipse at 2:24 PM on May 23, 2013
posted by yclipse at 2:24 PM on May 23, 2013
Jim Cramer actually has pretty solid advice on the mechanics of investing.
Ignore where the stock has been or what you paid for it. Instead, focus on what you think will happen. (As you did with your latter lump of stock.) Do you believe the stock will continue to go up? Then hang onto it. Do you believe it will stay even? Maybe you pull out your profits and move them somewhere else that you think will go up. Do you think it will drop and not come back? Sell it immediately. Better to take a 10% loss today than a 50% loss tomorrow. You can always buy it back at its bottom if you were wrong. Whatever you decide, in a week or a month or a year, go back and reassess and rebalance.
So that's how you decide what to do with what you have. To decide what to do with your money, you have to decide what your goals are. Drawing income from it consistently? Building a large sum of money over a long period? Saving for retirement? Once you decide how you want to play with it, then you figure out a strategy that you believe will get you there.
posted by gjc at 2:49 PM on May 23, 2013
Ignore where the stock has been or what you paid for it. Instead, focus on what you think will happen. (As you did with your latter lump of stock.) Do you believe the stock will continue to go up? Then hang onto it. Do you believe it will stay even? Maybe you pull out your profits and move them somewhere else that you think will go up. Do you think it will drop and not come back? Sell it immediately. Better to take a 10% loss today than a 50% loss tomorrow. You can always buy it back at its bottom if you were wrong. Whatever you decide, in a week or a month or a year, go back and reassess and rebalance.
So that's how you decide what to do with what you have. To decide what to do with your money, you have to decide what your goals are. Drawing income from it consistently? Building a large sum of money over a long period? Saving for retirement? Once you decide how you want to play with it, then you figure out a strategy that you believe will get you there.
posted by gjc at 2:49 PM on May 23, 2013
Sell part and keep part. It's not all or nothing.
Also, you can decide to sell the rest if the price drops below X. It will be easier to do this if you decide in advance, rather than in the moment where it seems like it might bounce back (says the guy who rode the 2000 crash all the way down).
posted by mattu at 3:06 PM on May 23, 2013
Also, you can decide to sell the rest if the price drops below X. It will be easier to do this if you decide in advance, rather than in the moment where it seems like it might bounce back (says the guy who rode the 2000 crash all the way down).
posted by mattu at 3:06 PM on May 23, 2013
The point of buying index funds is having diversity in your investments. This irons out the ups and downs of the market - an index fund holds a little bit of a whole lot of things, some will rise and some will fall but overall, if the economy grows, your investments will grow.
Holding stock in 2 companies is, like, the opposite of diversity. Leaves you vulnerable to the rise and fall. Ain't nobody got time for that.
posted by Mary Ellen Carter at 3:15 PM on May 23, 2013
Holding stock in 2 companies is, like, the opposite of diversity. Leaves you vulnerable to the rise and fall. Ain't nobody got time for that.
posted by Mary Ellen Carter at 3:15 PM on May 23, 2013
I agree with the "sell half, keep half" strategy. It's insurance against feeling like an idiot. If they keep going up, hey, you did the prudent thing and locked in some gains but still kept some invested. If they tank, hey, you did the prudent thing and locked in some gains instead of letting all of it become valueless.
posted by dfan at 5:34 PM on May 23, 2013
posted by dfan at 5:34 PM on May 23, 2013
If you're relying on luck, you're doing it wrong. Either buy a no-load index fund through an IRA or 401k, or research until you know more about a given stock than the brilliant full-time bankers you'll be betting against.
posted by sninctown at 7:20 PM on May 23, 2013
posted by sninctown at 7:20 PM on May 23, 2013
I'd see if I could move it from a brokerage account to an IRA or Roth IRA account as-is, that is, the stocks directly with no buying or selling transactions.
Sorry, no can do. All contributions to IRAs must be cash. Otherwise you would have a giant loophole to avoid capital gains tax.
posted by JackFlash at 8:28 PM on May 23, 2013
Sorry, no can do. All contributions to IRAs must be cash. Otherwise you would have a giant loophole to avoid capital gains tax.
posted by JackFlash at 8:28 PM on May 23, 2013
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If you don't have a goal you're waiting to hit, then cashing out with a profit is an economically rational decision at any point. The other common nugget of wisdom is that you can't time the market - you'll never be able to cash out at a "perfect" time. My only suggestion is to hold the shares for more than a year to qualify long-term capital gains rates.
posted by GuyZero at 1:07 PM on May 23, 2013 [1 favorite]