When To Sell Shares?

We conducted our inaugural webinar for Portfolio Members yesterday, featuring engaging discussions on various topics. One notable question from a member focused on when to sell shares in a stock. You’ll be surprised how common a problem this is among investors. We therefore wanted to share our insights.

 

At Lockstep, we sell shares for three key reasons:

1) Overvaluation:
When a stock’s price appreciates to a level where the company is overvalued or nearing overvaluation.

An example is Lockstep’s investment in GRBK, where the share price nearly doubled from the initial purchase, leading to us selling shares to reduce our exposure.

2) Capital Allocation:
Selling may be necessary to reallocate capital to more promising investment opportunities or other financial needs.

3) Change in Investment Thesis:
A fundamental change in the original investment thesis is probably the most important reason to consider selling a stock. For instance, if the rationale for investing in a company shifts due to altered business prospects or a PERMANENT shift in market conditions, it may be time to adjust the investment accordingly.

An example is our investment in Micron (MU). We initially invested in MU based on a positive demand outlook for memory chips. However, when the company revised its long-term outlook, we had to adjust too, so our investment thesis changed. We sold shares as a result.  

 

Adhering to these principles reduces selling based on emotion, and we should NEVER invest based on our emotions.

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