Fundamentally based exit strategies

[Dazza]

As Pad said ... so i decided to make one... only because i am a B&H person maybe cause im young and have limited knowledge.

But so far two shares have cost me heaps. I was wondering if anyone has any good strategies that could explain it in more detail etc. Any help would be good:

Example:

Richina Pacific Limited, my first share when i was 12 years ago, now.. 8 years later ive seen it gone from 1.50 down to 50 cents. Never sold or toped up. Over the last 8 years it had stopped its dividend all together. *Questions about going to their AGM and ask them whats going on*


I'm afraid im a WHS holder.. got them at 535 around March.. saw them sink to the 390ish region and then bounce back.. but now from what i read in here its gonna stay down.

PGB - so far a 20% odd buffer since IPO, wondering when to exit etc? Although i tink its long term...

However National bank finally has stop - lost orders *yah*

So yeah any help would be good thanks

[thereslifeafter87]

Sell when you think the companies future prospects are fully priced into its share price, or when you no longer think the business is capable of fulfilling the markets expectations.

Or, if you have made a mistake in the first place - like with WHS, then sell AS SOON as the mistake becomes apparent.
If the company is no longer a BUY, it is a SELL.

There is no such thing as a HOLD.

Another strategy is to sell when you have found something more attractive to put the money into.

[Capitalist]

Remember the axiom "Cut your losses and let your profits run." Most investors do exactly the opposite- they hold onto losers and sell profitable paper too soon. We're all guilty of it at some point.

It doesn't matter how good you think your stock is, how wonderful the balance sheet is, if the SP is dropping like a stone, sell it. It doesn't matter what you think, only what the market thinks.

Andthatismyopinion. ;)

[Unicorn]

It often takes a long time to identify fundamental changes - outside of major announcements. Share price trend changes usually become evident much more quickly.

I have found selling on a trend line break to be a reasonably reliable way of getting most of the upside, and avoiding major downside. FA to identify potential investments, TA to time buys and sells, has a lot of merit.

[Dimebag]

Hi Dazza

Based on my personal experience as a devout fundamentalist, I have come to believe that most of the work is done at the "buy" point in time. If this point in the process is executed correctly, a refined selling strategy is generally rendered redundant.

However, this belief is premised on my investment philosophy, which has come to recognise that one should only buy when one has a very strong conviction about both the ultimate success of the underlying enterprise, and the attractiveness of the market price in comparison to this estimation.

The primary problem with most fundamentalists, it seems (myself included - I am still learning myself and have made many mistakes), is simply not being choosy enough with their stocks. Often they buy stocks, but on close reflection, they would realise that they have no special reason to believe this particular company is going to do especially well. As such, is it any surprise that many "picks" subsequently run into "unforseen" problems and perform poorly. The point is, if you are uncertainty at the outset as to how events are likely to unfold, you are best to stay clear.

One of the key problems investors face is simply not being able to say "no". But generally, with investment, what you say no to is very very important. In fact the most important, because the truth is 99% of prospective investments are simply not of a high enough standard to warrant independent investment. The fundamentalist stock picker (as opposed to a portfolio investor who emphasises diversifiation - and would be best to puchase index funds), is primarily concerned with locating and investing in that 1%. "An investor needs to do very few things right so long as they avoid big mistakes" [Buffett paraphrased].

If you buy a questionable company, or at a questionable price, you are asking for trouble. In such cases, the methodology suggested by Unicorn, and many other technical analysts, may be of assistance. The truth is I am not qualified to pass judgement on this matter.

But from a fundamental viewpoint, you should avoid the need to be changing in and out of stocks by being very selective at the outset.

Buffett says investors should act, when investing in stocks, as if they could only buy say 20 stocks in their lifetime. Only 20. You must be absolutely convinced the stock you are about to buy is of a quality to justify a worthwhile investment.

Furthermore, "if you wouldn't consider owning it for 10 years, don't even think about owning it for 10 minutes" [Buffett paraphrased]. Don't buy unless you are truly comfortable holding the stock for a very long time.

The purpose of these measures is to:
(1) Act in a "preventive" manner - i.e. adopt a proactive approch
(2) To think much more carefully before making an investment.

The truth is, most people will make investments at the drop of a hat. Much more contemplation is required than this for successful execution.

All that is well and good. However, whilst we are learning we all make mistakes. Coupling the above with good business judgement is absolutely imperitive, and acquiring such judgement takes time.

As Microsoft MD Bill Gates has said, when queried, the secret to his success is good judgement; the secret to his good judgement is experience; and the secret to his experience is bad judgement!!

So I would advocate selling whenever: "You no longer have a strong conviction that the current share price offers the prospect of comparitively high returns with comparitively little risk". "Comparatively" here obviously means compared with the other investment alternatives that are currently available.

This general principle encapsulates most of the advice often given - e.g. sell when you think the stock is overvalued, when you realise you have made a mistake etc etc. Ultimately it boils down to a lack of conviction. And the analytical process that results in this conviction should be the same as the one you make prior to purchase. Every day you don't sell you are in effect "re-buyin

[Runswifscissors]

Dimebag Well argued! I hope that bags got more than dimes in it now

[thereslifeafter87]

It didn't have dimes in it to start off with.... :-)

I think the equivalent of a "Dimebag" in kiwi slang is a "tinny" or "foil".

:D

[Runswifscissors]

thank you tla87. I don't claim to be familiar with slang and for drug slang I have to rely on the Media.

[Dimebag]

Runswifscissors

Yeah a few more now than a few years ago! After a few years of early stumbles, going through the inevitable learning process, things have started to pick up. My portfolio is up from $71,000 to $123,000 so far this calander year, and up from closer to $20,000 at the beginning of 2002, so not too shabby.

The first few years were not so successful though - I succeeded in losing about $5,000 over the space of 2-2.5 years. The problems were as discussed above - poor judgement, and dabling in stocks that were simply too average about which I had no strong conviction. Hope and guesswork featured much too highly and I bought too many stocks. I also over-traded - the grass also always seemed to look greener.

Fortunately since then I have cleaned up my act. My judgement is improving and I am operating a much more concentrated portfolio focusing on a few truly unique companies. I'm still making plenty of errors though, but there amount and severity are declining.

Cheers
Dimebag

TLA87 - I was unaware that was the case

[stephen]

Well folks, how about this for a case in point - MHI?

Right now, I cannot see that my MHI holding meets Dimebag's criteria any more. The prospect of a comparitively high return is there, if we extrapolate from past performance, but it seems to me that the risk is much larger than when I bought at $4.50; in Buffet (or Graham) lingo, my "margin of safety" has evaporated.

If Phaedrus were to offer an opinion here, I am guessing he would say that MHI is still in an uptrend. I am not a TA guy, but I see higher highs, and higher lows, bids stacking up, and prices that remain above the 30 and 100 day MAs. I don't think a medium term TA person would sell MHI right now.

Unless there is more news very soon that would cause me to reassess the downside risk in MHI, I think I'm about to sell. I can always get back once MHI meets my purchase criteria again.

[Phaedrus]

Stephen,
MHI is of course in an uptrend, but rather more importantly, there is no sign at all of any technical weakness yet. The On Balance Volume indicator usually gives good warning of a stock topping out, and it is still rising. (There is no sign of distribution). Slow Stochastic oscillators also can identify changes in market sentiment well before they become reflected in the price.
MHI has not even come close to giving a Sell signal since the Buy signals of October and December of last year. Sell? MHI??? You would have to be a fundamentalist to even contemplate such an action!!!!

If you were able to accurately calculate the "true worth" of MHI, I would still see this fact as being of little practical use. The reason being that stocks in uptrends almost invariably overshoot this figure by an appreciable margin. To sell any rising stock when it reaches its "true worth" is to sell too soon.

Similarly with falling stocks. To buy a falling stock when it reaches its "true value" is to buy too soon - they usually overshoot and fall well below this figure. Why pay more than you have to?

[robbo]

Totally exxxceeellleent Posts--as alwasys Dimey,:):)[8D]:)

"Buy and Hold" with a good sense of Timing in the right Niches; and after you do your Field Evidence Homework: AND do be prepared to be iconoclastic, contrarian, and to GO against THE CROWD: and to have the courage of your investment CONVICTIONS; and NOT to sell short, or be swayed by naysayers and dommsters !! !!

**Also IMO--do try; to have some of your portfolio with an exposure to Growth Industries and in International export markets, with a growth in Demand.

Also find Companies with exclusivity/moat around their offering(ie: High &/or v.difficult barrier top entry which enables co. to suatain High PROFIT MARGINS &that is not exposed to cyclical Commodity Prices Markets; with Proven excellent pedigree Management: and be WARY of high Debt/Equity ratios///And remeber: Buffet doesn't: "Do Turnarounds"......

Finally do not under-estimate the POWER of excellent Sales & Marketing Teams, systems, Advertsing, branding, merchandising superiority, large number of sale Distribution systems and multi-sales channels... This is often overlooked by "quant"; anaysists who spend all their focus on Balnce sheets, as important as these are...

I first got into Astron in the early days, when I found out they had over 500 Sales agencies....it is now far north of that....Look at the Buffett icons, your Disneys, Coke, Amex, KFC, Mc Donalds, Seers Candy,Pepsi Cola, Pizza Hut, Wendys,Marlborough Cigarettes, GEICO Insurance, Reynolds & Reynolds,Washington Post---all Unique and powerful Marketing Brands and powerful Sales Systems and World's Best Marketers...Michael Eisner was a marketer...

Cheers & Regards,
Robbo:):)

quote:Originally posted by Dimebag

Runswifscissors

Yeah a few more now than a few years ago! After a few years of early stumbles, going through the inevitable learning process, things have started to pick up. My portfolio is up from $71,000 to $123,000 so far this calander year, and up from closer to $20,000 at the beginning of 2002, so not too shabby.

The first few years were not so successful though - I succeeded in losing about $5,000 over the space of 2-2.5 years. The problems were as discussed above - poor judgement, and dabling in stocks that were simply too average about which I had no strong conviction. Hope and guesswork featured much too highly and I bought too many stocks. I also over-traded - the grass also always seemed to look greener.

Fortunately since then I have cleaned up my act. My judgement is improving and I am operating a much more concentrated portfolio focusing on a few truly unique companies. I'm still making plenty of errors though, but there amount and severity are declining.

Cheers
Dimebag

TLA87 - I was unaware that was the case

[thereslifeafter87]

You serious?

Why do you think "Dimebag Darryl" (the guitarist from Pantera) changed his name to Dimebag? - before Pantera gave up glam-metal it was "Diamond Darryl" :) kinda fruity really...

A dime in US slang is 10. A dimebag = a $10 bag of marijuana.




quote:Originally posted by Dimebag

Runswifscissors


TLA87 - I was unaware that was the case

[whirl]

I'm more of a B&H than a trader... but a valuable lesson I learnt with EBT many years ago was that if you continue to hold a share that drops and then lays stagnant then its best to take that money and invest it elsewhere and re-coup losses gradually than wait for the original share to improve again.

I hope nobody read that out loud, otherwise you wont have any breath left! ;)

whirl

[Lawso]

GEN is a case in point for me. I got in "cheaply" before it listed and bought more in the IPO. Invested $29k in all. By late 2000 the stake was worth nearly $60k. Managed to sell some @ $4 during the slide but should have sold the lot. Today my stake is worth about $3k. Not worth selling now so may as well Hold & Hope, though I know others will say I should sell even now.

So I've learnt from my experience with GEN and RMG (also a hold and hope) but I've learnt even more clearly from some of the wiseheads on ShareTrader. Now have a fluid rather than a fixed exit strategy, e.g. WHS @ 463 recently.

[Phaedrus]

I think many people would have made that particular mistake, Lawso. One of my examples was with CER (Ceramco). I bought very well (CER was in a good uptrend) and I tripled my money in a surprisingly short time. The uptrend ended with a clear reversal and a downtrend began. I was a "Buy and Hold" type of chap back then, so I held. And held. And held. All the time CER was in a steady downtrend. I finally sold when my initial investment had halved in value. Hard to believe eh? My inactivity had turned a 300% profit into a 50% loss! I would like to be able to report that such a thing never ever happened again, but alas, it did. I think I must be a slow learner - I seem to have to make every mistake 3 times before the lesson is finally driven home.

[whiteheron]

Phaedrus

I too was a slow learner -- for close to the the first two years , making all of the errors that new investors inevitably make

From what I have read and heard it seems that all new investors have to suffer several significant losses as their dues to becoming a reasonably competent investor --- this was certainly the case with me --- ouch !!!

I am pleased to say that bad picks have been few and far between over the last eighteen months
Long may it continue

Constant vigilance and "stop losses " help absolutely heaps