Making the "sell decision"

Making the "sell decision"

And now, the hardest part.

"You thought 'marrying' the stock was difficult, full of unknowns and subjective assessments? Try the divorce!"

In investing, selling can be one of the hardest things to do. Investors get emotionally vested in their decisions, and hangin on becomes more a matter of hope - and desire to be right "after all" - than a rational, conscious decision based on a company's merit.

True value investors don't think this way. Value investors watch their businesses perform just as a good manager would, and when they stop performing, they get out. It's really one of the great attributes of stock investing: Investors don't get the headaches that managers and small business owners get. When things turn, or when a better opportunity arises, they can just sell and move on. The upshot: Keep track the company's story, and be ready to reappraise and move on if the new appraisal comes up short.

The "sell decision"

A condensed thought process and framework may help. Most experienced investors know that selling takes more discipline and can be more difficult than buying.

For value investors, the main rule about selling is this: The thought process is similar to the buying decision. A business must be a good business to consider owning it, and the price must reflect, or be lower than, the value of the business.

1. If the price exceeds the value of the business, it's time to sell.

Additionally, value investors should consider selling when:

2. The business changes: Any change in fundamentals or the intangibles that drive them signal at least a re-evaluation, and perhaps a sale, of the business. So a changing marketplace, supply chain, interest rates, cost structure, management team - you name it - can trigger a reassessment and sale.

3. There's something else better to buy: Your company may be good, but perhaps there's a better ne out there. Selling should only be done when there's something else better to buy, even if that "something else" is a fixed income cash deposit or a rental property or even a vacation home. If 5 percent risk-free is better than your investment right now, then that's the "better thing to buy." If there isn't something better to buy, then your investment is probably okay.

4. When you need the money: No additional explanation necessary.