Monday 3 January 2011
Saturday 1 January 2011
When to Sell? The QVM approach to Selling Stocks
Taking profit
Profit should be realised from sales of stocks in the following situations:
(I) when the stock is obviously overpriced, or
(II) when the sale of the stock frees the capital to be reinvested into another stock with potentially better return.
Not taking profit in the above situations can harm your portfolio and compromise its returns. In other circumstances, let the winners run.
Underperforming stocks should also be sold early. Hanging onto underperforming stocks is costly too. There is the opportunity cost that the capital can be better employed for higher return. Also, hanging onto these lack-lustre stocks reduces the overall return of your portfolio.
Reducing serious loss
When the fundamentals of a stock have deteriorated, sell to protect your portfolio. This decision should be make quickly based on the facts and situations, in order to keep your losses small.
How can the average investor improves his investment returns in stocks?
Profit should be realised from sales of stocks in the following situations:
(I) when the stock is obviously overpriced, or
(II) when the sale of the stock frees the capital to be reinvested into another stock with potentially better return.
Not taking profit in the above situations can harm your portfolio and compromise its returns. In other circumstances, let the winners run.
Underperforming stocks should also be sold early. Hanging onto underperforming stocks is costly too. There is the opportunity cost that the capital can be better employed for higher return. Also, hanging onto these lack-lustre stocks reduces the overall return of your portfolio.
Reducing serious loss
When the fundamentals of a stock have deteriorated, sell to protect your portfolio. This decision should be make quickly based on the facts and situations, in order to keep your losses small.
How can the average investor improves his investment returns in stocks?
Are Cyclical stocks also Value stocks? Value stocks usually earn money, turnaround stocks may not.
What are the characteristics of value stocks?
When is a cyclical stock also a value stock?
Many investors view cyclical stocks as value stocks. Cyclical stocks are value stocks only if they sell at an earnings (P/E) discount to their peers and meet the book value criteria as mentioned above.
When is a cyclical stock not value stocks but a turnaround stock?
If the company is selling at a discount to its tangible bookvalue, but its earnings have disappeared, it becomes a possible turnaround situation and not a value stock.
- True value investors only buy if a stock is trading substantially below its tangible book value. It’s hard finding these types of situations in all your investments. Use this as a guide and not as a “must have.” Over the years, you will have noticed these types of values in the banking, energy and chemical industries, among others.
- Another factor you need to find in a value stock is a low price to earnings (“P/E”) ratio. You are looking for a beaten down stock in an out-of-favor industry. A nice P/E discount is 20% to 50% of the industry average over a few years. You then have the potential to make a nice return on both the natural rotation of the industry to a higher timeliness, as well as the stock regaining market favor.
When is a cyclical stock also a value stock?
Many investors view cyclical stocks as value stocks. Cyclical stocks are value stocks only if they sell at an earnings (P/E) discount to their peers and meet the book value criteria as mentioned above.
When is a cyclical stock not value stocks but a turnaround stock?
If the company is selling at a discount to its tangible bookvalue, but its earnings have disappeared, it becomes a possible turnaround situation and not a value stock.
Value Investing is a time tested investment strategy that works in most market environments.
Value investing is finding a good quality stock that you are proud to own for an inexpensive or bargain price.
Basically, a value stock has a low price to book value and a low price to earnings ratio. In determining whether a stock is inexpensive or not, one needs to analyze the company’s book value, also known as shareholders’ equity. You need to determine what the true net worth of a company is by calculating a tangible book value.
It’s critical to pick a company with an excellent management team.
http://myinvestingnotes.blogspot.com/2010/07/characteristics-of-value-stocks_23.html
Basically, a value stock has a low price to book value and a low price to earnings ratio. In determining whether a stock is inexpensive or not, one needs to analyze the company’s book value, also known as shareholders’ equity. You need to determine what the true net worth of a company is by calculating a tangible book value.
http://myinvestingnotes.blogspot.com/2010/07/characteristics-of-value-stocks_23.html
Look at the big picture when Investing
How does the company fit into the economy; and is there a need for the company’s products or services.
Look at the company’s business model (found in the company’s SEC form 10k) and determine if it coincides with your thinking, your goals and your investment objectives.
Look at the company’s business model (found in the company’s SEC form 10k) and determine if it coincides with your thinking, your goals and your investment objectives.
It’s also important to see some sort of upward trend in revenues and earnings growth.
It’s also important to see some sort of upward trend in revenues and earnings growth.
Value Line Investment Survey is found in most libraries and does a nice job showing long-term company trends. No one likes a company that constantly does worse than the year before, no matter what the value is! Every company needs some sort of “curb appeal” for you to profit from your investment. At some point, you need to sell in order to make money from your investment.
Upward trends help on the resale side of your investment.
Many investors find it hard to distinguish between “cheap” stocks and value stocks. Most times, stocks are low because they deserve to be low. There is nothing wrong with buying a “cheap” stock as long as you know and understand the risks. There are many stocks out there that have large annual losses, high debt levels and no equity. That does not necessarily mean you can’t make money on them, but you should call it gambling rather than investing.
http://myinvestingnotes.blogspot.com/2010/07/characteristics-of-value-stocks_23.html
Value Line Investment Survey is found in most libraries and does a nice job showing long-term company trends. No one likes a company that constantly does worse than the year before, no matter what the value is! Every company needs some sort of “curb appeal” for you to profit from your investment. At some point, you need to sell in order to make money from your investment.
Upward trends help on the resale side of your investment.
Many investors find it hard to distinguish between “cheap” stocks and value stocks. Most times, stocks are low because they deserve to be low. There is nothing wrong with buying a “cheap” stock as long as you know and understand the risks. There are many stocks out there that have large annual losses, high debt levels and no equity. That does not necessarily mean you can’t make money on them, but you should call it gambling rather than investing.
http://myinvestingnotes.blogspot.com/2010/07/characteristics-of-value-stocks_23.html
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