In this interview with Peter Cundill protege Tim McElvaine he discusses Cundill’s strategy for knowing when to sell. Here’s an excerpt from the interview:
I think like most value investors we were quite good on getting an entry price. By quite good many people will be horrified by this but we were kind of within fifty percent of the bottom. Which was all we ever wanted in life. Having an unrealized loss, as long as you’re confident on the ultimate values, isn’t the end of the world for us.
So the two other parts of that is one you have to be prepared to wait. Peter was very very big on patience and the other component is when it’s time to sell. One of his rules that he adopted over time…. so one of the changes he made in this model was he wanted to sell half of the stock when it doubled, and I know everyone talks about pinning a decision on some type of fixation point, your cost or something, is bad in investing. Well from our point of view if you take half your money off the table when it doubles and whatever you have left is a free ride. So whether or not that’s a good mental model or a bad one it was just a process we used.
It stopped us from falling in love with things as it goes up or conversely being so relieved that if it in fact has gone up that you just sell it all.
We often talked about how to improve the sell side but to be quite honest we never figured out how to do it so we tended to stick with this half and then sell the rest over time.
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