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  1. #1
    Senior Member
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    Default Fundamentally based exit strategies

    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
    Oil - NZO
    REE - ARU
    Copper - EQN/OXR/TMR
    Iron- AGO/ADY/UMC
    Nickel-WSA
    PGM/Gold - PLA/VRE

  2. #2
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    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.

  3. #3
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    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.

  4. #4
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    Default

    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.

  5. #5
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    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

  6. #6
    Runswifscissors
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    Dimebag Well argued! I hope that bags got more than dimes in it now

  7. #7
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    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".


  8. #8
    Runswifscissors
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    thank you tla87. I don't claim to be familiar with slang and for drug slang I have to rely on the Media.

  9. #9
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    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

  10. #10
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    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.

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