11-07-2013, 07:32 PM
I now extremely rarely sell a stock due to a large price rise. However, if the stock is overvalued, it does make sense to sell the stock for another which is more reasonably priced.
The problem is that a stock will get ahead of itself, meaning it is priced at future value instead of current value. Selling a stock in this case then has the potential of a future repurchase with the loss due to taxes from the previous sell.
I only sell a stock which is overvalued compared to future value. My future value is based on 5 years of dividend growth. I use 5 years since a longer extrapolation would be unreasonable.
The problem is that a stock will get ahead of itself, meaning it is priced at future value instead of current value. Selling a stock in this case then has the potential of a future repurchase with the loss due to taxes from the previous sell.
I only sell a stock which is overvalued compared to future value. My future value is based on 5 years of dividend growth. I use 5 years since a longer extrapolation would be unreasonable.