Wednesday, 24 June 2009

Always buy, hold or sell based on fundamentals.

To summarise:

We should buy, hold or sell based on fundamentals.

The basic premise behind our "buy" strategy - over the long term, investors gravitate toward stocks with strong fundamentals because those are the strongest companies, and that causes those stocks' prices to rise over time.

If you're buying stocks based on the above basic premise, that is, they have strong fundamentals, and over the long term, stocks with strong fundamentals tend to rise, you should hold on to a stock as long as it continues to meet the fundamental criteria you used to select it.

It's time to sell and replace the stock with another stock that does meet your criteria (and one that thereby has better prospects of rising in value), if the stock's fundamentals have slipped, so that it no longer meets the criteria you used to buy it. Also consider selling, if the stock is grossly overpriced, not justifiable even by the good fundamentals of the company.

Price should always be related to the fundamentals.

We should NOT buy, hold or sell based solely on the price is low or high or rising or falling

Related posts:
Why we buy? Because of the fundamentals
Why we hold? Because of the fundamentals
Why we sell? Because of the fundamentals
Always buy, hold or sell based on fundamentals.

Because the goal is always:
  • look closely at what to hold and what to sell now
  • to maximize return on capital and
  • to take advantage of the time value of money,
One must look forward at future prospects rather than backward at now-irrelevant old (higher or lower) prices.

Also read:
To guide you on holding or selling a stock in your portfolio.
To guide you in re-balancing and re-weighting of your portfolio.
Weathering a Panic
Stock Selling Guide - Gain/Loss Worksheet (Part 1 of 5)
Stock Sale Considerations (Part 2 of 5)
Evaluating Changing Fundamentals (Part 3 of 5)
To Sell or to Hold Checklist (Part 4 of 5)
Selling and Holding mistakes Checklist (Part 5 of 5)

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