Two [Important] Questions About Your Exit Strategy
How in the world am I going to get out of this? It’s a question we’ve all asked ourselves.
I’ve asked it while waves were trying to sink my boat... while the tiny float plane I was in was headed straight for a mountain and refused to go higher... while on a date... and as my stocks dropped.
The truth is having an exit strategy is everything. I’m convinced having one has saved my butt (physically and monetarily) more than once.
The old adage is true; a lack of a plan is the same as planning to fail.
It’s why we put incredible emphasis on our exit strategies at The Oxford Club. And truth be told, it’s a topic that’s often caused great internal strife. Over the years, there have been plenty of heated debates about the very best exit strategy.
You’d think getting out of a stock would be easy - just sell when you’ve got a big gain.
If only it were that simple.
In reality, it’s far more difficult - with all sorts of variables. There are things like taxes, losses, market conditions and the biggest of them all... emotions. The fear of missing out has perhaps cost investors more money than anything else.
Knowing your exit strategy before you make your trade is the only way around it.
But here’s the deal... There’s more than one exit strategy. Yes, the Club advocates for a 25% trailing stop - but not all the time.
Members often ask us - seemingly trying to test our conviction for our admiration of trailing stops - why some of our portfolios shun the idea. They think they’ve found the chink in our armor. But alas, no arrows are getting through.
Like we said, there are many exit strategies for many reasons.
For example, Alexander Green’s ultra-popular All-Star Portfolio does not follow a trailing stop policy. The logic is simple. We don’t need a stop policy because the expert managers running the funds use them. To add our own policy on top of their strategy would negate the whole idea.
Yes, reader, you’re starting to see why this subject gets so complex.
And in Marc Lichtenfeld’s Oxford Income Letter, our income guru constantly reminds readers that his Compound Income Portfolio doesn’t use trailing stops.
The rationale... The strategy relies on long-term dividend reinvestment. Near-term volatility is a blessing for the strategy. It allows those reinvested dividends to buy more shares of the company (which are now cheaper).
I hope you are asking a couple of astute questions. But what about his exit strategy? How does Marc know when to sell?
Simple... his strategy says to sell when the stocks no longer meet his ownership criteria. In this case, they must fit the rugged parameters of his unique 10-11-12 System.
Again, you’re seeing how this notion of an exit strategy can get sticky. It’s often confusing. It takes great thought and strategy.
Our intent wasn’t to confuse. But we do want you to think.
When will you sell... and why?
Answering those two simple questions correctly will put more money in your pocket than anything else. Why and when you sell is far, far more important than what and when you buy.
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