Investors share a common goal: finding an investment which subsequently goes up in value. Knowing when to sell that investment depends on a variety of factors. This could include hitting a valuation target, a company (assuming you’ve bought a stock) experiencing a change in circumstances or you simply needing the money for something else.

While we’re often told by investment experts about the merits of a ‘buy and hold’ strategy, that doesn’t mean ignoring your investments completely. It is important to monitor changes in price and the reasons behind a rise or fall in the value of your investments.

If something has shot up in value, try and work out if there is a valid reason and whether that additional valuation is justified – if not, that might be your trigger to sell or at least take some profit. The theory is that markets will eventually revert to fair value.

If an investment has fallen in value, do the same exercise and work out if something has gone wrong or if the market is being overly pessimistic and so now could be a good time to buy more at a cheaper price.

Monitoring your portfolio doesn’t need to be a daily task, although don’t be too relaxed in your approach and only check in once a year.

Two different views

Strategies behind cashing out of investments cropped up in two fund manager meetings I’ve had over the past week. Although there were similarities with regards to buying cheap and selling once a stock has re-rated, each fund manager had a difference approach in terms of how long to wait before hitting the ‘sell’ button.

I remarked to fund manager Chris Bailey of Daniel Stewart Dynamic Opportunities Fund (LU1603418408) that I was surprised to see him recently taking profits on numerous stocks despite the fund only having launched a few months ago.

Many investors would expect a fund to be a long-term investor, yet the Daniel Stewart product expects to have an average holding period of between three and 12 months for a stock and typically make 10%+ on a trade.

‘We look for anomalies and catalysts to revert a stock back to its normal valuation,’ says Bailey. ‘For example, we bought Kingfisher (KGF) as we thought its French business was undervalued. We sold half the position when the shares jumped up on a Goldman Sachs research note.’

Bailey argues that he’s been investing in companies during moments of relative weakness. His approach is fine as long as stocks don’t stay depressed for ages.

Don’t assume this fund will always be able to crystallise gains in short periods as there is a real risk that markets stay irrational for a long time. In this scenario investors would still need to be patient when investing in this fund.

Another take on the subject

In contrast, Orbis director Daniel Brocklebank says his team of fund managers hold stocks for an average of 3.5 years, even though they are also looking for under-priced stocks with potential to re-rate.

He says investors suffer from short-termism. ‘If you can act in a way to take long-term decisions, you have a competitive advantage. Few other people are thinking this way. If you also take fewer decisions, you take high quality ones.’ (DC)

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