Billionaire investor Leon Cooperman spent 25 years at Goldman Sachs before he became CEO of his own hedge fund, the $US9.4 billion Omega Advisors.
He’s built on those decades of experience to know exactly when it’s time to sell a stock.
On this week’s Masters in Business podcast with Bloomberg View’s Barry Ritholtz, Cooperman, who called his team “deep dive fundamental investors,” walked through the four scenarios in which his firm is likely to dump a stock.
1. When prices appreciate.
This is the “highest quality” reason to sell a stock, Cooperman said. Essentially, if he bought something at one price because he thought it was worth more than that price, and then it appreciates without anything else changing, then he will sell.
We “hit our target, we get out,” he said.
2. When things don’t unfold as anticipated.
“I tell my guys and gals, stay on top of your companies,” Cooperman said.
He encourages them to talk to suppliers and competitors and follow what’s going on in the economy. If things aren’t going the way they expected, he said, “Let’s sell before we get murdered.”
3. When it’s time for something new.
When Cooperman’s team develops a new idea for a stock that has a better risk-reward ratio than other holdings, then they will rotate out of a position that is less attractive to free up funds.
“We’re not the Federal Reserve Board,” he said. “We cannot print money.” Hence the need to make the switch.
4. When it’s time to get out of harm’s way.
If you change your view of the market, you can bide your time for a while in the futures or options markets, Cooperman said. But if your outlook completely changes from bullish to bearish and you want to reduce your exposure, you have to sell. It’s as simple as that.
“We did a poor job in 2008 because we missed the significance of Lehman,” Cooperman said. But ultimately he sells stocks when he thinks it’s time to get out of harm’s way.