This post is dedicated to Exit Strategies in various accounts that I have. This is my first post in exit strategies - so these are preliminary thoughts. These will evolve as I encounter situations that will inevitably arise and force me to re-evaluate.
The first exit strategy is simple - have no exit strategy - just stay invested come hell or high water. I know that it is easily said than done - but - it is also the right approach for at least a part of my portfolio.
Exit Strategy #1: No Exit Ever
Bernini: I will not exit because I can not exit. Blessing in disguise.
El Greco: Since this account is designated for actively managed mutual funds - I will leave the decision up to the mutual fund managers. I will stay invested in these funds.
Durer: It has a 2050 target date retirement fund - I will go with the underlying essence of this investment and not touch it until we are close to 2050.
The second exit strategy is also simple - do not exit since we are not concerned about price. These are dividend or income plays where price is only the secondary factor.
Exit Strategy #2: Why Exit, Enjoy Dividends
Klimt, Da Vinci: They hold pure debt instruments with monthly distributions. We are only interested in the distributions - so we will continue to hold them as long as they are continuing to provide reasonable distributions. I guess 5% is a good minimum floor for such distributions. So no exit as long as they continue to provide a 5%+ yield.
Renoir and Turner: They hold stocks with high dividend payouts. I am tentatively deciding that for stocks that yield more than 3% in dividends, keep holding them forever. I have currently two of these dividend stocks: INTC and VZ. I will keep them irrespective of their price as long as they continue a dividend yield of 3%+.
What about stocks that have lower dividends? Also what about broad ETFs/Mutual Funds? Lets first take the case of stocks with medium level dividends (1% < dividend yield < 3%). This case will also include broad market ETFs like SPY, EFA, VWO and the corresponding index funds. For these cases, I propose the following exit strategy:
Exit Strategy #3: 200 Day Rule
Stocks, ETFs and Mutual Funds that are primarily growth plays with modest dividends will be managed based on their price relative to their 200-Day Exponential Moving Average (EMA). When these stocks/ETFs/MFs fall decisively below their 200D-EMA, I will consider that as a signal to get out of them. This decision although will be made with an intent to get back in when the long term momentum reverses and the price goes decisively above 200D-EMA.
Currently, the following accounts will lend themselves to this category:
Van Gogh and
Bruegel.
Note that the 200 Day Rule is only to be applied when sufficient evidence exists that we are getting into a significant long term downturn. The bias will be towards holding on for as long as possible.
Now, we come to the most volatile (and hence needing prompt attention) part of the portfolio - growth holdings.We are keeping these mostly for price appreciation without regard to dividend levels. Such instruments demand swift movement out when the price is not moving in the right direction. So, for these, I propose the following exit strategy:
Exit Strategy #4: 100 Day Rule
Pure growth plays will have the 100 Day EMA as the exit benchmark. I do not have any stock that falls in this category - but the 4 units currently kept for trend trading will move here as I get away from trend trading.
