When to Sell?

[born2invest]

We spend all this time talking about when to buy but what about when to sell?

I generally go off the Phil Fisher reasons to sell:

- I made a mistake or overlooked something when I did my initial analysis when I bought.
- The company fundamentals aren't doing too well or the direction they are heading I don't agree with. (This happened with me in my investment into Coca Cola Amatil where the company deteriorated after I had bought.)
- I find a better investment or use for the cash i.e. selling one company to buy another.

What are your reasons to sell?

[Bobcat.]

1. Technical analysis -- broken trendline, head & shoulder pattern, large volume, over-bought signals (RSI>80%, sharp rise for 3+ days, P/E, Price/Book > 0.9, Price/Sales>1.0, etc)
2. Negative fundamental change (although by the time I find out, it's often too late)
3. Better short-term prospects elsewhere
4. Stop-loss is hit -- I don't always implement a stop loss (e.g. with stocks that have poor liquidity) but when I do, I seldom regret cutting my losses.

A selling strategy is just as important as a buying strategy (but IMO all too often overlooked).

BC

[noodles]

- Taking Profits: As a value investor, I like to sell when my stocks reaches fair value. I might hold half in case the stock continues upwards.
- Stop Loss: Sometimes the market is right. I am not stubborn and hold a stock if the market is telling me the price needs to go down. Keep losses small, profits big.

[noodles]

Price/Sell >1.0

What is Price/Sell?

[Bobcat.]

What is Price/Sell?

Sorry - I meant 'Price/Sales':

Price to sales is calculated by dividing a stock's current price by its revenue per share for the trailing 12 months. Some traders use it to calculate under-valued or over-valued stocks.

[Schrodinger]

25%+ CAGR no less

[born2invest]

1. Technical analysis -- broken trendline, head & shoulder pattern, large volume, over-bought signals (RSI>80%, sharp rise for 3+ days, P/E, Price/Book > 0.9, Price/Sales>1.0, etc)
2. Negative fundamental change (although by the time I find out, it's often too late)
3. Better short-term prospects elsewhere
4. Stop-loss is hit -- I don't always implement a stop loss (e.g. with stocks that have poor liquidity) but when I do, I seldom regret cutting my losses.

A selling strategy is just as important as a buying strategy (but IMO all too often overlooked).

BC

There are a lots of sell reasons for the above. Which ones do you choose or does everyone of them have to happen for you to sell.

[born2invest]

- Taking Profits: As a value investor, I like to sell when my stocks reaches fair value. I might hold half in case the stock continues upwards.
- Stop Loss: Sometimes the market is right. I am not stubborn and hold a stock if the market is telling me the price needs to go down. Keep losses small, profits big.

How do you calculate what fair value is? Do you have a precise dollar/cents figure?

[born2invest]

25%+ CAGR no less

So if the share reaches 24% after 11 months you wouldn't sell it because you want 25%

What if after 11 months the business is deteriorating, would you hold onto it to get that last one percent?

[Bobcat.]

There are a lots of sell reasons for the above. Which ones do you choose or does everyone of them have to happen for you to sell.

Not every one of the four reasons I gave, B2I, but typically any one. During technical analysis I may look for two or three signals for confirmation but otherwise any one of the four reasons to sell would be a sufficent trigger:

1. TA
2. Fundamental change
3. Opportunity cost, or
4. Stop loss

e.g. for my OGC stock holding:
1. TA looks OK (RSI = 50%, no recent sharp rise, P/E between 7 and 8, Price/Book ~ 0.7, Price/Sales ~ 0.8) - no trigger.
2. Hedging change announced yesterday does not IMO increase its financial risk - no trigger
3. Although I have a sizable holding, I do not see an immediate need to release funds for another opportunity (I still have 5% in cash) - no trigger
4. Given my holding is on the NZX (yes in hindsight, with recent FOREX movements, I would've been better to have purchased these on the ASX!), liquidity does not warrant a stop loss - no trigger.

...and so I continue to hold.

[Valuegrowth]

I think when to sell stocks is one of the most difficult decisions. Once we sell stocks they can go up rapidly. For example recently some sold XERO around NZD 17. Suddenly it went up above NZD30. Recently it hit new high. I believe if we could buy outstanding stocks with great potential we will not sell them unless they are going to become fundamentally weak and if we could find another attractive investment. I have read few books on when to sell.

Remember some stocks could go up seasonally. During last year there was a good demand for online based companies globally. Similarly there could be demand for some other stocks in the future. I will sell or reduce some stocks with seasonal characteristics when they become too hot. As long as great value and future prospects there I like to forget volatility.

[Schrodinger]

Yep. I try to invest in companies that wont deteriorate, I try to get them on the rebound. The interesting part is usually I have no reason to sell, this is only tested when a good opportunity presents itself and I have made my 25%.

[born2invest]

Not every one of the four reasons I gave, B2I, but typically any one. During technical analysis I may look for two or three signals for confirmation but otherwise any one of the four reasons to sell would be a sufficent trigger:

1. TA
2. Fundamental change
3. Opportunity cost, or
4. Stop loss

e.g. for my OGC stock holding:
1. TA looks OK (RSI = 50%, no recent sharp rise, P/E between 7 and 8, Price/Book ~ 0.7, Price/Sales ~ 0.8) - no trigger.
2. Hedging change announced yesterday does not IMO increase its financial risk - no trigger
3. Although I have a sizable holding, I do not see an immediate need to release funds for another opportunity (I still have 5% in cash) - no trigger
4. Given my holding is on the NZX (yes in hindsight, with recent FOREX movements, I would've been better to have purchased these on the ASX!), liquidity does not warrant a stop loss - no trigger.

...and so I continue to hold.

I see, thanks for explaining. Could you provide examples when you did sell a company.

[peat]

e.g. for my OGC stock holding:
1. TA looks OK (RSI = 50%, no recent sharp rise, P/E between 7 and 8, Price/Book ~ 0.7, Price/Sales ~ 0.8) - no trigger.


Only one of those is TA. ;+)

[Bobcat.]

Only one of those is TA. ;+)

You're sharp Peat. That's right - Price/Earnings and Price/Book and Price/Sales are 'technically' more part of a company's fundamentals...but still valid triggers.

1. TA (trendlines, head & shoulder, RSI, OMV)
2. Fundamental change (P/E, PEG, P/Book, P/Sales)
3. Opportunity cost, or
4. Stop loss

NCM was an example of a stock that dropped to touch $10 three times. I bought it the first and third time, with a stop loss on my second trade (set at 9.80). Prices often break through on a third touch (up or down) and so I needed to mitigate my risk.

GOR was trading flat just above 7c with low RSI (22%) when I bought it. 10days later it spiked on an announcement, and on the third day of rises with volume at 6 times its average I sold out at 11c (even though RSI was still only ~65% and fundamentals hadn't changed much).

Earlier this week, GRY was lifting against the price of Gold, and although I believe it still has legs to go further (Directors are buying), I could see better opportunity for an investment in ALK and so I sold half to free up some funds.

NEN last week announced a disappointing drilling update at Ca Ngu. This is a negative fundamental shift which lifted its estimated P/E, even though its P/Book was still unchanged, and so I sold out (last night they announced an even worse Cua Lo Prod result which has plummeted its share price today 75%).

Last week, I was tempted to sell TGZ since it had lifted a bit off a recent announcement, and the POG is floundering, but when I examined some of its fundamentals (estimated P/E ~3, P/Book ~0.3 and P/Sales ~0.3), I decided to continue to hold.

Investing is as much about risk mitigation as it is anything else:

a) Identify and try to quantify risks
b) Mitigate with a sales strategy
c) Never fall in love with a stock (we too easily tolerate pain from those whom/which we love)
d) Pray for guidance.

[born2invest]

FA trigger - falling or flat eps, div yield, ROC and ROE

What would a trigger be for dividend yield?

Please provide a more detailed example on this if you don't mind.

[Valuegrowth]

Actually that probably should read DPS not yield. I shall amend. But I like to see 3 years of increasing eps and dps so any fall in the dividend usually indicates an operational or cashflow problem with the company. A well managed company should be able to continue to grow both eps and the payout to shareholders whilst still increasing the capital value of the stock. See my thread on combining growth with high dividend yields http://www.sharetrader.co.nz/showthread.php?8348-Great-Dividend-and-Growth-Stocks&highlight=growth+div

KW I like your approach.

[born2invest]

Ditto to all of the above. I dont run stop losses but would add #4 Buying a house.

TA trigger - break below the 200 day MA with confirmation from MACD and RSI (example FXL)
FA trigger - falling or flat eps, dps, ROC and ROE (example MNY)
Profit downgrade - example SIV
Opportunity cost - example MNF during June to August 13)

You must have rules for when you will sell a stock, and you must act on the sale signal when it occurs. Ignoring it, or hoping that it will go away, is what sees you incur substantial capital losses. Personally I find that TA provides excellent exit signals and it is very easy to follow absolutely so you are never swayed by emotion or trying to convince yourself that there is some fundamental value in the stock that the market is overlooking and that is worth hanging on for.

I always have dozens of stocks that I would like to buy - selling one and moving in to another opportunity that I have been looking at means that I dont really care what happens to the price of the stock that I sold, what is important is what happens to the one that I bought.

Do you buy/sell based on P/E ratios at all?

[Bobcat.]

Three that popped up recently that I took a position in are EBT, FMG and AKG.

Not too recently I trust, KW.

6 months ago would've been the time to buy into all three. Do you mind sharing what P/E information you have on them now that persuaded you to buy recently?

[Valuegrowth]

We spend all this time talking about when to buy but what about when to sell?

I generally go off the Phil Fisher reasons to sell:

- I made a mistake or overlooked something when I did my initial analysis when I bought.
- The company fundamentals aren't doing too well or the direction they are heading I don't agree with. (This happened with me in my investment into Coca Cola Amatil where the company deteriorated after I had bought.)
- I find a better investment or use for the cash i.e. selling one company to buy another.

What are your reasons to sell?

Born2invest I can’t agree more. Definitely you can outperform all other market players in the mid and long term if you apply above strategy. So many times I have underperformed the markets by applying other strategies. Have a nice day!