I like a good recovery stock – perhaps it’s the peculiarly British affection for an ‘underdog’. There is no better moment as an investor than picking a Marks & Spencer (MKS) or a Rolls-Royce (RR) when most have deemed them uninvestable and then watching the share price soar.
But there are two challenges that come with any success. The first is knowing when to sell. The investment mantra ‘run your winners’ has much to be said for it. Anyone who has been investing for any time will probably have stories of the ‘10-baggers’ they spotted early, bought, watched double in price and then sold when they should have held on.
In a portfolio you do not want any one stock to overly dominate, so the best strategy is usually to bank some gains and sell down slowly, releasing capital to buy fresh stocks. And there lies the second challenge – finding the next rising stars.