Decluttering: When to Sell a Stock

When the OppenheimerFunds Value Equity team moved to Denver, Colorado to join OppenheimerFunds in March 2013, we also relocated our families. Moving is a fantastic opportunity to differentiate between the things you can’t live without and the clutter. However, after years of buying stuff to fill a house, how can you tell the difference? Human nature makes it easier to say yes than no, and that’s how clutter starts to build. Unless you’re asking the right questions on a regular basis, a portfolio can start to feel the same way: Cluttered. We’ve spent a lot of time thinking through our sell discipline and making sure we’re asking the right questions at the right times. Often the best decisions made are acknowledging mistakes to limit downside or realizing the market recognizes what we knew all along.

The process starts with knowing the potential of a stock we own, what we call the reference price, and the timeframe of the investment. A reference price is a dynamic, potentially changing range of outcomes incorporating the market’s and our view of the company’s fundamentals, while the timeframe is the period we think the investment thesis will unfold.

As a holding outperforms and approaches its reference price or a reasonable chunk of the investment period passes, a series of questions are triggered. Has the thesis changed? Has the holding’s potential changed? Have risk factors–external or internal–changed? If the answer to any of these questions is ‘yes,’ we can act appropriately to add, hold or reduce the position.

On the other hand, if a holding underperforms by a certain percentage or is a chronic underperformer for a period of time, we need to understand why. This triggers a different series of questions. Is the underperformance related to a fundamental change at the stock level or a behavioral change in the market? Does it stem from a specific event? Is the original thesis still intact? Have the risk factors–external or internal–changed? Depending on the answers (and our confidence in understanding the problem), we act to hold, reduce or even eliminate the position.

Finding new ideas and being patient with good businesses are important, but so is making the difficult (but right) decision to sell. Having a disciplined framework to trigger the discussion, as well as asking the right questions, is key to balancing when to buy, when to hold, and when to sell.



Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and geopolitical risks. Value investing involves the risk that undervalued securities may not appreciate as anticipated. Small and mid-sized company stock is typically more volatile than that of larger, more established businesses, as these stocks tend to be more sensitive to changes in earnings expectations. It may take a substantial period of time to realize a gain on an investment in a small or mid-sized company, if any gain is realized at all. Diversification does not guarantee profit or protect against loss.

Leave a Comment

Your email will not be published. Required fields are marked *



You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>