A reader wrote in to say that he owns way too many junior resource stocks. Many are deep in the red. But when he looks over the list, he remembers why he bought them and can’t bring himself to sell in the face of that potential.

I understand. It hurts to realize a loss. It’s hard to admit we made a bad choice. And hardest of all is to let go of the dream that prompted us to buy in the first place.

But he knows, you know—we all know—we have to. That’s why he looks over his list and sighs.

So let’s talk about selling.

I start with the “why” question. If I’m not convinced on this score, the “when” doesn’t matter. And as it happens, answering why also tells us when.

First off, let me say that one size doesn’t fit all. Different folks have different reasons that are perfectly valid for them. Highly risk-averse investors, for example, might be quite right to set stop losses and head for the exits simply on the basis of higher volatility. That would be counterproductive for folks swinging for the bleachers on potential 10-baggers. Nothing has potential for 1,000% gains without being highly volatile.

One thing we can all agree upon is that we have to prune our portfolios from time to time, or they become unmanageable.

We can’t keep real track of too many stories—not without staff dedicated to the task. This is a good reason to adopt an “out with the old, in with the new” policy. Whatever the number of companies we can follow closely, once we reach that number, it makes sense to discipline ourselves to sell our worst stock before we buy a new one. This is the simplest way to maintain a manageable portfolio of stocks we understand well and are highly confident in. And that last point—confidence—is vital when speculating on highly volatile stocks.

But what makes a stock the “worst” one? It’s not just share price…

Here’s a list of specific reasons to sell:

Here’s are some that are NOT valid reasons to sell:

Note that while none of these non-reasons will prompt me to sell, if I have something else I’m very keen on, and I need some cash, I might sell anyway. But that’s to raise funds, not because of the above.

In general, I’m extremely resistant to selling without good reason. I don’t like having to wait more than a year or two for my speculations to work out, but I will if there’s nothing really wrong with my bet.

On the other paw, if I have a good reason to sell, the merciless wolf in me has no qualms about killing to trade.

That’s my take,

Lobo Tiggre Signature

Tuesday, October 8, 7:06pm, EDT, 2019