Showing posts with label sell all. Show all posts
Showing posts with label sell all. Show all posts

Saturday 27 November 2010

The Anxiety and Joy of Selling

It is not possible to sell at the absolute top or to buy at the absolute bottom of the price fluctuations of your stock.  Therefore, do not focus on timing your selling or buying at the absolute extremes of price fluctuations.  Be content that you have sold close to the peak and that you have bought close to the bottom of the price fluctuations.

One of my stock has moved upwards, very much higher than the fair value that I give to it.  It's PE has now exceeded 1.5X its signature PE, granted that its signature PE was a single digit one.  There was no deterioration in its fundamentals.  Its recent quarterly report did not report or suggest any dramatic improvement in its fundamentals.  The price of this stock has climbed with intermittent periods of small corrections over a very short time of less than a month.  This counter has given dividend yearly and at this present high price, the yield is rather low.   I sold off half of my stocks in this counter locking in a very good substantial profit. The other half will be sold gradually should the price continues to move upwards, deteriorating its 'upside potential to its downside risk ratio'.

As the remaining shares are now held virtually cost free, this investment operation is positive NOW and will always be positive in the FUTURE.


Related:

The Anxiety of Selling

Sunday 7 November 2010

The Anxiety of Selling

A vexing question facing investors during market sell-offs is whether to join the pack.  For value investors, the answer is no, but the more pertinent question is when to sell.

Value investors set selling criteria at the time of purchase Their attitude in buying is to select stocks that are least likely ever to trigger the criteria for selling.

But business change, and when they deteriorate, their shares should be sold, just as the owner of a business sometimes must decide to close down.  When selecting stocks, value investors specify what deterioration means for purpose of selling.  The logic is simple:  The same factors used to select and avoid stocks are used to decide which stocks to sell and when.


Sales are indicated when the key factors supporting an original buy are gone.
Here is a summary of such factors:

Internal:  dubious management behaviour, vague disclosure or complex accounting, aggressively increased merger activity, dizzying executive compensation packages.

External:  intensifying new competition, disruptive technological onslaughts, deregulation, declining inventory and receivables turns.

Economic:  shrunken profit margins; declining returns on equity, assets, and investment; earnings erosion; debt increased aggressively in relation to equity; deterioration in current and quick ratios.

Value investor avoid selling when bad news is temporary.  Single-quarter profit margin slippage should provoke questions, but not sales orders.  If investigation shows deeper problems, then the condition might be permanent and selling indicated.  Permanent deterioration requires more evidence.

When in doubt concerning whether deterioration is temporary or permanent, value investing might include a hedging strategy.  This would call for selling SOME BUT LESS THAN ALL SHARES HELD.

Value investors never sell solely due to falling market prices ('emotional value').  They require some evidence related to the declining intrinsic value of the business to warrant a revision in the hold-or-sell calculus.  Stock price fluctuations are far too fickle to influence such an important decision.

In the case of a preset policy to sell when price reaches a certain high level (overpriced), many value investors follow the same mixed strategy adhered to when unsure whether a development is permanent or temporary:  SELLING SOME, BUT NOT ALL.


Main Points:
Many financial experts advise the selling of part of the stock. The rest is left to grow further. In this way you get part of your profits and let the rest generate further returns.

Know When to Sell

Don't sell just because the price has gone up or down, but give it some serious thought if one of the following things has happened. 
  • Did you make a mistake buying it in the first place?
  • Have the fundamentals deteriorated?
  • Has the stock risen too far above its intrinsic value?
  • Is there something better you can do with the money, that is, you can find better opportunities?
  • Do you have too much money in one stock, taking up too much space in your portfolio?


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 fundamentalsof the stock.


Related:
Taking Profit and Reducing Serious Loss

It's Time to Take Some Profits