STOCK SELLING STRATEGIES ....

 Courtesy :oldschoolvalue.com


Buying stocks is easy, but do you have stock selling strategies? Do you consider your exit strategy prior to buying a company? The exit strategy is just as important as the entry strategy. The entry strategy is something everyone considers, but when do you sell? 

 Here are some  reasons for stock selling :

• You made a mistake in judging the company
• The company fundamentals have changed
• A better value or opportunity comes along
• The need for emergency cash
• Too far above intrinsic value

Acknowledging a Mistake

I believe this to be one of the key psychological barriers that an investor has to break in order to be successful. You have to be honest with yourself and remember your mistakes. Nobody wants to admit they are wrong, but as human beings, we are wrong quite often.Too often, investors know they’ve made a bad decision but choose to hang onto the losers until they can at least break even or come out with a tiny gain. This usually leads to a larger loss. If that stock is able to break even and we sell at that point, our mind does not recognize this as a shock. This bad decision eventually gets swept away only to be re-enacted at a later time.

If we know that a mistake has been made, sell.

Change in Business Fundamentals

This is pretty self explanatory. If a fashion company decides to start expanding or change its business to the agriculture industry, then we have a problem.Even if the prospects in the  same industry turn bleak and no chance for a revival on foreseeable future -Sell

Better Value Investment Ideas

An investment is defined as

The investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value. – dictionary

If the reason we are investing is to obtain profitable returns, doesn’t it make sense to sell a current investment in order to invest in a better, more profitable opportunity?. This is not just limited to stocks. You could find better value in real estate, bonds, coins, cars, antiques etc.

Better value knocking on your door? Sell.

Sell Stocks for Emergency Use

Life brings all sorts of situations. If you are in need of emergency cash, there is no real reason to visit a loan shark or bank to borrow money that you may already have.
This is a hard situation to call, but if this emergency is extremely urgent, sell.

Over priced and Valued

Intelligent investors monitor their companies, not the stock symbol. We understand that all companies have an intrinsic value. If you bought a great company at a discounted price and the price has now reached the intrinsic value, you could sell or hang onto it because you can fairly expect to receive a certain rate of return from your intrinsic value analysis and discount rate.But due to Mr Market’s craziness, say the price of the company shoots beyond the intrinsic value. Selling in this type of scenario is also psychological. Your greed is nudging you, grinning and nodding, telling you “you know it’s going up further”. If this ever comes around, halt, and reread or rethink your analysis and get back to basics. Price follows value, and if the price is pushed up due to speculation and hype, price will eventually meet value.

Posted in: Investment Guru