Knowing when to sell

Klogg · 2 April 2012

Hi all,

I had a quick look through the forums and couldn't find much information on this topic, so I thought I'd start one in the hope that someone can offer me some insight.

I've been investing in shares for the last 6months and am currently up about 7% on my 30k (that's including gross dividends - I should really use net...). But the issue I'm facing is figuring out how to sell.

One stock in particular comes to mind - Breville Group (BRG). I did my research and bought them about a month ago @ $3.10, just before their half-yearly. They announced a huge profit increase and have been going bananas ever since, hitting $4.26 today... Needless to say that with dividends, I'm up about 30% on this one in a month.

My issue now is, I've only valued them at approximately $4.00 (prior to their profit increase of 45%), but can see a great growth story in the company.
While I believe they're overvalued at the current price, I've held the stock because:

- They have a potential for great growth (I'd estimate about 15% per year)
- They pay a good dividend (about 4% at current price)
- They have great management (2 members are also on the ORL board - another great company)

The question I have for anyone who is willing to help is - is there a factor that I haven't included in my consideration to hold the company?

Any advice on the topic is greatly appreciated.

tech/a · 2 April 2012

Klogg said:
Hi all,

I had a quick look through the forums and couldn't find much information on this topic, so I thought I'd start one in the hope that someone can offer me some insight.

I've been investing in shares for the last 6months and am currently up about 7% on my 30k (that's including gross dividends - I should really use net...). But the issue I'm facing is figuring out how to sell.

One stock in particular comes to mind - Breville Group (BRG). I did my research and bought them about a month ago @ $3.10, just before their half-yearly. They announced a huge profit increase and have been going bananas ever since, hitting $4.26 today... Needless to say that with dividends, I'm up about 30% on this one in a month.

My issue now is, I've only valued them at approximately $4.00 (prior to their profit increase of 45%), but can see a great growth story in the company.
While I believe they're overvalued at the current price, I've held the stock because:

- They have a potential for great growth (I'd estimate about 15% per year)
- They pay a good dividend (about 4% at current price)
- They have great management (2 members are also on the ORL board - another great company)

The question I have for anyone who is willing to help is - is there a factor that I haven't included in my consideration to hold the company?

Any advice on the topic is greatly appreciated.

Yes

Supply and demand.
But I'm a techie so will leave it at that.

So_Cynical · 2 April 2012

You need a plan Klogg.

A holistic wealth generation and management from your stock market activity's plan.

ROE · 2 April 2012

This is from Philip Fisher - Common Stock, Uncommon Profit book

1) The investor has made an error in his/her assessment of the company.

2) The company has deteriorated in some way and no longer meets Fisher's 15 points for purchasing a stock.

3) The investor finds a better company which promises higher long term results after factoring in capital gains.

I pretty much follow that principles...I held stocks that has done 6 baggers, 5 baggers
1 baggers, they all varies in gains, have not sold many.

The last stock I sold was FGE after a 3 baggers (bought at 1 sold at 4) and that was a mistake

JIN 4 baggers in less than 12 months still haven't sold 1 share...

Selling has never been easy for me so I try to stick to that principles if I can...

burglar · 2 April 2012

Klogg said:
Hi all,

I had a quick look through the forums and couldn't find much information on this topic,

...

Hi Klogg,
I vaguely recall a thread on the topic, try this one.

https://www.aussiestockforums.com/forums/showthread.php?t=21891&p=613666#post613666

Klogg · 2 April 2012

tech/a said:
Yes

Supply and demand.
But I'm a techie so will leave it at that.

If by that, you mean the number of orders, demand outstrips supply 2to1.

As for the other replies - my initial plan was to always go back to what I fundamentally believed were the reasons I bought the company,e.g. valuable, growth, asset-play, etc.

I'm still sticking with that plan... and I guess I'm doing the right thing. I think the 30% I'm seeing over the course of a month is really attractive to me is all.

And just as an FYI - I read over the relevant chapter in Peter Lynch's book, which is pretty much in-line with my initial thoughts.

Thanks again for the help

Klogg · 2 April 2012

burglar said:
Hi Klogg,
I vaguely recall a thread on the topic, try this one.

https://www.aussiestockforums.com/forums/showthread.php?t=21891&p=613666#post613666

...clearly I failed at searching.

Thanks burglar!

Garpal Gumnut · 2 April 2012

Klogg said:
Hi all,

I had a quick look through the forums and couldn't find much information on this topic, so I thought I'd start one in the hope that someone can offer me some insight.

I've been investing in shares for the last 6months and am currently up about 7% on my 30k (that's including gross dividends - I should really use net...). But the issue I'm facing is figuring out how to sell.

One stock in particular comes to mind - Breville Group (BRG). I did my research and bought them about a month ago @ $3.10, just before their half-yearly. They announced a huge profit increase and have been going bananas ever since, hitting $4.26 today... Needless to say that with dividends, I'm up about 30% on this one in a month.

My issue now is, I've only valued them at approximately $4.00 (prior to their profit increase of 45%), but can see a great growth story in the company.
While I believe they're overvalued at the current price, I've held the stock because:

- They have a potential for great growth (I'd estimate about 15% per year)
- They pay a good dividend (about 4% at current price)
- They have great management (2 members are also on the ORL board - another great company)

The question I have for anyone who is willing to help is - is there a factor that I haven't included in my consideration to hold the company?

Any advice on the topic is greatly appreciated.

My take on the market atm is to sell earlier than one normally would for a smaller profit.

The market is whipsawing to an incredible degree.

It is like a bride's nightie.

gg

Boggo · 2 April 2012

Interesting comment by Marcus Padley on Inside Business yesterday morning when he said that this is not an investor's market, it's a trader's market and will be that way for a while yet.

Valid comment I think when you look at the demise of some of the pillars of investment such as LEI, JBH etc etc.

It really confirms what I and many others on here believe, its a hit and run market.

All the fundamental theory in the world is not going to protect you from China and Europe, cold hard price action and the ability to go to cash without sentiment or emotion is all it takes.

Just my

mr. jeff · 2 April 2012

Garpal Gumnut said:
My take on the market atm is to sell earlier than one normally would for a smaller profit.

The market is whipsawing to an incredible degree.

It is like a bride's nightie.

gg

GG I wholly agree - I have missed 20% profits in search of more and have now found that jumping as soon as there is a toppy bar is the best move at the moment. Good to hear it from someone else...and confirmed with a few weeks of solid gains. Been a while.

tinhat · 2 April 2012

It depends on your strategy and how much risk you want to carry. You can take risk off the table, selling your initial capital outlay (the stock now doesn't owe you any money) and leave your profits (the "free money") in the stock for the long run.

You can implement a trailing stop-loss that you update on a weekly basis. Examples are Alan Hulls ActVest trailing stop loss (I've forgotten the technical details but I have it built into a chart I use), the Guppy count-back method (more for traders than medium term investors - can use weekly chart), or Chandelier Exits (using average true range). You can use a moving average (say the 30 day MA).

You can dollar average down - take some money off the table (reduce exposure risk) over the next couple of months.

Klogg · 3 April 2012

tinhat said:
It depends on your strategy and how much risk you want to carry. You can take risk off the table, selling your initial capital outlay (the stock now doesn't owe you any money) and leave your profits (the "free money") in the stock for the long run.

You can implement a trailing stop-loss that you update on a weekly basis. Examples are Alan Hulls ActVest trailing stop loss (I've forgotten the technical details but I have it built into a chart I use), the Guppy count-back method (more for traders than medium term investors - can use weekly chart), or Chandelier Exits (using average true range). You can use a moving average (say the 30 day MA).

You can dollar average down - take some money off the table (reduce exposure risk) over the next couple of months.

Some people are really going to take a shot at me for this, but after a while of consideration I went against a stop loss.

My argument here is, if I believe a share price is a fair bit less than what I value the company at, it doesn't necessarily mean it won't go further down... and I can't tell how much further it will drop.
(Actually when it does drop, I usually top up with any spare cash)

As for the other selling methods, given I'm only using fundamental analysis in my decision to buy, shouldn't I use the same type of analysis to sell? Otherwise, I may be getting mixed signals...

Vixs · 3 April 2012

Klogg said:
Some people are really going to take a shot at me for this, but after a while of consideration I went against a stop loss.

My argument here is, if I believe a share price is a fair bit less than what I value the company at, it doesn't necessarily mean it won't go further down... and I can't tell how much further it will drop.
(Actually when it does drop, I usually top up with any spare cash)

As for the other selling methods, given I'm only using fundamental analysis in my decision to buy, shouldn't I use the same type of analysis to sell? Otherwise, I may be getting mixed signals...

I don't know why people would take a shot at you for that. It's your money and portfolio, not theirs.

I think the difference is that you are buying as an investment. You are going to be a long term holder presumably, until the company reaches your projected valuation. It makes no sense to get stopped out and lose your capital base when you are not concerned with short term moves. As long as you actively monitor the news, reports and don't miss the play if something happens that changes your fundamental analysis, I'm sure you'll be fine. Worst case scenario without a stop loss is that a game-changing development occurs (war or unrest in the company's area of operations, death of half the management in a plane crash, total unavailability of equipment used to carry out the company's works - you know, the unexpected catastrophies) and you are the last to find out. That is when you lose.

I personally would use a stop loss that is outside the range of 'normal' movements so that I didn't lose out due to volatility. Consider it a catastrophy-stop.

Anyone looking at 'trading' not 'investing' is going to want to use a stop loss though - preservation of capital is key as they are likely not holding for the long term.

Knobby22 · 3 April 2012

Klogg said:
As for the other selling methods, given I'm only using fundamental analysis in my decision to buy, shouldn't I use the same type of analysis to sell? Otherwise, I may be getting mixed signals...

But often you don't hear the bad news till too late.

I have learn't the hard way that you need to be prepared to take at least some profit off the table when price direction changes ESPECIALLY on quick price rises. You can buy back later at a lower price if your fundamentals are still correct. Selling is harder than buying imo.

pixel · 3 April 2012

Boggo said:
Interesting comment by Marcus Padley on Inside Business yesterday morning when he said that this is not an investor's market, it's a trader's market and will be that way for a while yet.

Valid comment I think when you look at the demise of some of the pillars of investment such as LEI, JBH etc etc.

It really confirms what I and many others on here believe, its a hit and run market.

All the fundamental theory in the world is not going to protect you from China and Europe, cold hard price action and the ability to go to cash without sentiment or emotion is all it takes.

Just my

+100%
you invest when markets are trending (up: long; down: short)
you trade when they're range-bound, which they've been for the last couple of years

skc · 3 April 2012

tinhat said:
You can take risk off the table, selling your initial capital outlay (the stock now doesn't owe you any money) and leave your profits (the "free money") in the stock for the long run.

Profits - be they open or closed profits - are not free money!

If I've been trading for 10 years and made $1m profit in total... it doesn't mean that I can just leave that in the market without the same care and attention one would normally heed.

Klogg said:
As for the other selling methods, given I'm only using fundamental analysis in my decision to buy, shouldn't I use the same type of analysis to sell? Otherwise, I may be getting mixed signals...

This is something I've always believed in, but you also need to acknowledge that fundamental analysis gives you a range of price targets (and a pretty big range).
If your position has moved up into the lower of that range, there is no guarantee that it can go to the middle or upper range. Afterall, there's no real reason why the market must value a company using 13 or 15% return (or PE of 11 or 13), yet that's probably the limit of accuracy one can expect from fundamental analysis.

In that instance, protection of profit becomes more important and a price-based stop is not necessarily contradictory to your fundamental entry. Every now and then you will exit a position and price keeps moving forward - but you can only make decision based on what you know now rather than by hindsight.

Of course, unless there is new fundamental information and your target range has moved up further you'd hold and wait for the price to catch up.

tech/a · 3 April 2012

Profits - be they open or closed profits - are not free money!

I often hear people say that they are trading with or gambling with "Their money"
meaning someone elses like a pokie win is the Governments or hotels money.
Or a share profit is from all those other people who have just bought and pushed the price higher.

They divorce themselves from what is really THEIR MONEY
Make no mistake its yours!

This problem of exiting seems to be directed at those who are investing or trading in a discretionary manner.

If you decide to trade in a discretionary manner or indeed invest in a discretionary manner you need to understand what your edge is and how you maintain that edge.
You should KNOW the answer to this question.

If you DONT YOUR GAMBLING

Klogg · 3 April 2012

skc said:
Of course, unless there is new fundamental information and your target range has moved up further you'd hold and wait for the price to catch up.

I did re-evaluate last night to see if my decision would have changed, and the only thing that could possibly sway me is the potential in the US retail market for the company.
Given this, the company is priced just over what I would consider a 'fair' price (whether that's accurate or not) and is therefore, worth keeping in my mind.

skc - As for using a stop-loss, how do you decide at what level to place it?

tech/a - couldn't agree more!

Julia · 3 April 2012

Vixs said:
As long as you actively monitor the news, reports and don't miss the play if something happens that changes your fundamental analysis, I'm sure you'll be fine.

What about that unexpected profit warning on the open that can cause a rapid drop by 40 - 50%?

Knobby22 said:
But often you don't hear the bad news till too late.

I have learn't the hard way that you need to be prepared to take at least some profit off the table when price direction changes ESPECIALLY on quick price rises. You can buy back later at a lower price if your fundamentals are still correct. Selling is harder than buying imo.

+1.

skc · 3 April 2012

Klogg said:
skc - As for using a stop-loss, how do you decide at what level to place it?

There is no hard and fast rule. Using BRG as an example which has gone a bit parabolic, $3.60 / $3.80 is a zone of support that should hold if everything's going good, but that also mean giving back a fair chunk of your profit (currently ~$1 per share). If you are not willing to risk so much open profit then you will need to have a higher stop.

It is not fool prove and sometimes you end up selling at a temporary low point only to see the share flies up afterwards.

Given that BRG is driven by the profit results I doubt it will fall flat in an instant. When it reaches a temporary "consensus" price zone you will see congestion pattern.

Knowing when to sell

Klogg

tech/a

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