Covering Your "Round Trip" Risk With Big Gainers

"Big gainers that are still bargains"- that's the subject of money manager John Dorfman's Bloomberg column this morning:

Suppose you buy 500 shares of a stock that rises from $10 to $100, becoming what star investment manager Peter Lynch used to call a "10-bagger.'' If you hold your original shares, you wind up with $50,000. If you sell half your shares when the stock doubles, you would end up with $27,500. To avoid the risk of a round trip, your "opportunity cost'' was $23,500.

Dorfman's advice:

Don't automatically sell big gainers, unless it's necessary to achieve adequate diversification in your holdings. Instead, make a judgment call in each case.

Now, my take: I like the idea of selling half a position when a stock doubles. Why? Because I get my original capital back and the holding becomes a "free ride." Many have told me that's too conservative, but there you go.

Back to the article, Dorfman names names of stocks that have skyrocketed but are still good values. One company, Holly Corp. (HOC), he owns for his clients.

Another is Phoenix-based Phelps Dodge (PD), the world's third-largest copper producer.

Full disclosure: I don't own any of the stocks mentioned in the piece.