Sunday 8 November 2009

When should a stock be sold?

In a portfolio of good quality stocks bought at fair or bargain price, there are usually few reasons for selling.  However, the businesses of these companies need to be tracked regularly and their quarterly results announcements followed.

 
When should a stock be sold?  

 
Firstly, if the fundamentals of the stock are deteriorating, the stock should be sold urgently. 

Another good reason would be when the stock is overpriced.
  • Be alert when the PE of the stock has risen by more than 50% above its usual average PE. 
  • Reappraise the fundamentals and valuations of this stock, in particular, its future earnings growth potential. 
It maybe timely to cash out on a portion or all of a stock if
  • the present high PE cannot be justified or
  • if the present high PE has run ahead of the fundamentals of the stock.

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