Invest in good companies on the dip.
1. Do not down average.
2. Buy when market is pessimistic.
3. Sell when:
- Fundamentals change for the worse
- Grossly over-valued
- Better investment opportunities exists
- Stock falls 10% below purchase price or when 50 day Moving Average falls below the Price line
- PBV is usually the first to break. That is, it will go over 1. It breaks first in most cases because the discount to 1 is usually fairly modest to start with. Shares bought on a PBV of 0.9 need only rise by 11% for the discount to be erased. But if the PE on purchase was 8 and the Yield 5%, when PBV hits 1, the shares would only be at a still attractive 8.9 and 4.5% respectively. Do not sell just because PBV < 1 ceases to exist.
- Sell on a strong rising PE and falling Yield, unless there is an indication that these would come back down to value levels by the release of very good figures. Thus if historical PE had risen to 16 and Yield to 2.5% and an announcement showed doubled EPS and Dividend, that immediately puts the shares back on to a PE of 8 and yield of 5% on a historical basis.
- If you wait for the announcement, review the net Cash, PBV and especially, EPS forecasts. If these still make sense stay in because the share had reinstated deep value status. This situation is quite rare.
- In most cases, announcements merely confirm that the share has performed in line with expectations, rather than greatly exceeded them, and has lost super value status. Therefore, after a good rise, where most of the deep value has gone, sell shortly before announcements, rather than after, because shares frequently fall back following the figures, unless those figures are much better than anticipated. That does not happen often.
Source:
The Motley Fool www.fool.co.uk/
Page 11: http://www.docstoc.com/docs/7984050/Investment-Strategies
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