Knowing when to sell

[Klogg]

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.

To be honest, if it hit $3.60 again, so long as fundamentals hadn't changed, I'd actually buy more!

I guess this is why I find stop-losses (and exiting in general) puzzling...

 

[tech/a]

To be honest, if it hit $3.60 again, so long as fundamentals hadn't changed, I'd actually buy more!

I guess this is why I find stop-losses (and exiting in general) puzzling...

So your strategy is that while in profit hold?

If your holding decreases in value 10/20/50% or more but your valuation remains above your buy price
You hold as well
In fact you could buy more?

If so this flies in the face of strategy 1

Clearly you have no strategy.
You have no idea what your expectancy is.

Have you EVER closed a trade.
If so why?

 

[Klogg]

So your strategy is that while in profit hold?

If your holding decreases in value 10/20/50% or more but your valuation remains above your buy price
You hold as well
In fact you could buy more?

If so this flies in the face of strategy 1

Clearly you have no strategy.
You have no idea what your expectancy is.

Have you EVER closed a trade.
If so why?

I've only ever closed 1 real trade and that was because my valuation was well below the share price. It was a quite obvious scenario then, when I bought at what I considered to be 20% undervalued, then went to about 30% overvalued.

My strategy is:
- to sell when I believe the company is overvalued
- to hold when it's fairly valued and I believe will grow
- to buy when a company is undervalued.

Right now (and the reason I made the thread), I'm questioning how much the company should be overvalued before I sell, and whether or not I should be using stop-losses...

Basically, I'm gathering advice from others to define at what level I believe a company is overvalued too much for me to hold and how to form a decision based off this.

 

[tech/a]

I've only ever closed 1 real trade and that was because my valuation was well below the share price. It was a quite obvious scenario then, when I bought at what I considered to be 20% undervalued, then went to about 30% overvalued.

My strategy is this, I feel it's quite obvious that my strategy is:
- to sell when I believe the company is overvalued
- to hold when it's fairly valued and I believe will grow
- to buy when a company is undervalued.

Right now (and the reason I made the thread), I'm questioning how much the company should be overvalued before I sell, and whether or not I should be using stop-losses...

Basically, I'm gathering advice from others to define at what level I believe a company is overvalued too much for me to hold and how to form a decision based off this.

I find this interesting.
So if you under value a company no doubt many others will come to the same conclusion as yourself.
If you think it over valued surely the rest of the world will also know what you know.

That being the case (Correct me if wrong). Why dont you see stocks perfectly rising on your undervaluation and falling on your over valuation.
If it was that clear cut it would be simple for anyone with accounting knowledge to buy and sell PERFECTLY.---as we all know its not.

So at what point can you get in front of the crowd with both valuations as you need to be first to buy and first to sell.Otherwise sell offs will catch you napping---err calculating.

Would you agree that your calculation may well be vastly different to others??

 

[Klogg]

I find this interesting.
So if you under value a company no doubt many others will come to the same conclusion as yourself.
If you think it over valued surely the rest of the world will also know what you know.

The world may have the facts, but they may not have come to the same realisation just yet... or a majority of people are too scared to invest, as was the case late last year.

That being the case (Correct me if wrong). Why dont you see stocks perfectly rising on your undervaluation and falling on your over valuation.

If it was that clear cut it would be simple for anyone with accounting knowledge to buy and sell PERFECTLY.---as we all know its not.

And I believe the reason for this is again, emotion. Be it fear, greed, or whatever other than fact that brings someone to buy or sell, it creates inefficiencies which allow for what I perceive to be the under/overvaluation of a company.

So at what point can you get in front of the crowd with both valuations as you need to be first to buy and first to sell.Otherwise sell offs will catch you napping---err calculating.

If I'm still analysing a company and all of a sudden people start buying and send the price through the roof, I accept the fact that I missed this opportunity and go to the next one. Patience is all it takes to find another.

Would you agree that your calculation may well be vastly different to others??

Without a doubt, valuations will vary. But as time goes on and I gain experience, my valuation process has been refined and will continue to be refined. To date though, it has served me relatively well... But ofcourse, I've found a few mistakes in my decisions (i.e. I believe I've overvalued two companies in my portfolio)

As for selling, it should be linked to my valuation the same way my buying is... I'm just not as confident as I have less experience on that side.

 

[McLovin]

The world may have the facts, but they may not have come to the same realisation just yet... or a majority of people are too scared to invest, as was the case late last year.

Joel Greenblatt is a great example of that point (there are many others). His Gotham Fund averaged 50%pa for 10 years with special situation investing. A lot of his best ideas were found on the front page of the WSJ

 

[tech/a]

The world may have the facts, but they may not have come to the same realisation just yet... or a majority of people are too scared to invest, as was the case late last year.

So a valuation is an opinion not necesserily held by a consensus of opinion.
Infect you may well be the only one with such an opinion.

(1) How often are your opinions right.
(2) at what point do you determine your right?
(3) At what point do you determine your wrong?

 

[odds-on]

1) After 12 - 18 months
2) I have made a valuation mistake.
3) Better opportunity

 

[Gringotts Bank]

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.

Hi,

I like the idea of using the same criteria for exit as entry.

If you use Fib retracements for entry, use them also to time your exit.

If you use valuations (say earnings and sales figures), use the same criteria for exit (eg. sales fell 40%, and your exit criteria is >=-30%).

Try not to think up extra reasons to hold or sell after the fact. Know before hand what your exit criteria are.l

 

[tech/a]

Hi,

I like the idea of using the same criteria for exit as entry.

If you use Fib retracements for entry, use them also to time your exit.

If you use valuations (say earnings and sales figures), use the same criteria for exit (eg. sales fell 40%, and your exit criteria is >=-30%).

Try not to think up extra reasons to hold or sell after the fact. Know before hand what your exit criteria are.l

Have you tested this idea with quantifiable results or is it an hypothesis?
When you say you like the idea is it just an idea or have you figures that show consistent profit.

I ask as that which you've posted on other threads is totally un workable.

 

[motorway]

Consider buying when there are signs that participation is rewarding those who have chosen to participate.... More importantly that those participating are not continuing to be disadvantaged.

Consider selling when there are signs that participation is punishing those who have chosen to participate ... consider this from the perspective of those most recent to have climbed aboard and from those who have chosen to remain aboard.

Consider Buying and selling after you have identified these turning points.

A real understanding of Support and resistance and of trends.

consider a trend in order to persevere ( to live and grow ) Has to reward the majority of those who intelligently wish to participate. ( just like anything else that lives and grows )

This includes ==> Buyers , sellers and holders.

This will be seen in healthy market cycles
of trend <===> consolidation <===> trend

markets have memory , because people do.

Hence Opportunity COSTS ( esp if no one else agrees )

Flow and Structure--> Both need to be seen to be Healthy

Stops are a useful entry technique..
What is the problem with a few small losses if it ads up to a much better entry ?

In terms of TIME AND PRICE

They are less useful (imo ) in managing a trade in profit

A more active approach should take precedence ( better opportunities elsewhere ? )
and yes investors should consider to some degree their 12 mth tax allowance.


Things go down till they go up

SIMPLE !

They go up till they go down


should be SIMPLE !


Always consider Opportunity Cost imo

Motorway

 

[Gringotts Bank]

No data tech, sorry!

If you enter a trade because of brilliant earnings estimates, it would make no sense to exit because of a trend line cross (when the earnings estimates are still brilliant). That defeats the purpose of entering in the first place.

 

[Klogg]

Hi,

I like the idea of using the same criteria for exit as entry.

If you use Fib retracements for entry, use them also to time your exit.

If you use valuations (say earnings and sales figures), use the same criteria for exit (eg. sales fell 40%, and your exit criteria is >=-30%).

Try not to think up extra reasons to hold or sell after the fact. Know before hand what your exit criteria are.l

I'd like to have a set of criteria that I can set for every situation, but there's no way you can account for that.

One company might have a write-down of an asset which reduces earnings by 40%, while the other just makes 20% less profit. With a hard and fast rule of earnings reduction >= 30%, the first would have been sold, the second wouldn't. Yet, (depending on the situation of course) it's more likely that you'd rather keep the former over the latter.

As for my valuations on entry, there's no strict formula that can be applied. A good part of my valuations come from aspects that cannot be quantified very easily, such as:
- The quality/experience of management
- The industry/sector the company is within
- Any macroeconomic factors that will very obviously hurt the company (e.g. High AUD and retail)
- Any director buying/selling

There's a plethora of other factors that cannot be simply inserted into a formula... and this is what makes knowing your exit criteria so difficult, other than the three main points I listed in my strategy.

 

[nulla nulla]

Every one has their own interpretation of indicators, volumes, strengths and weaknesses. I find it helps to have a sale target in mind before you buy and when it hits your target sell and lock in your profit. Don't lose sleep worrying over missed profits if it goes higher, there will be plenty of other opportunities.

 

[Boggo]

There's a plethora of other factors that cannot be simply inserted into a formula... and this is what makes knowing your exit criteria so difficult, other than the three main points I listed in my strategy.

And in about 5 years from now if you haven't thrown in the towel you will have gone full circle and be back at square one and using the reality of the daily and weekly price action as a barometer of where a stock is heading (and along with it your funds).

Based on the items you have listed above where would you currently be on LEI and JBH as two examples and describe why (to yourself as well !).

The hardest part of the exit is overcoming the fact that you may have been wrong, you see that mentality by reading between the lines of a large majority of posts on this and other sites.

 

[Gringotts Bank]

I'd like to have a set of criteria that I can set for every situation, but there's no way you can account for that.

One company might have a write-down of an asset which reduces earnings by 40%, while the other just makes 20% less profit. With a hard and fast rule of earnings reduction >= 30%, the first would have been sold, the second wouldn't. Yet, (depending on the situation of course) it's more likely that you'd rather keep the former over the latter.

As for my valuations on entry, there's no strict formula that can be applied. A good part of my valuations come from aspects that cannot be quantified very easily, such as:
- The quality/experience of management
- The industry/sector the company is within
- Any macroeconomic factors that will very obviously hurt the company (e.g. High AUD and retail)
- Any director buying/selling

There's a plethora of other factors that cannot be simply inserted into a formula... and this is what makes knowing your exit criteria so difficult, other than the three main points I listed in my strategy.

I see what you're saying but I reckon your un-quantifiables can be quantified.

--director buying selling - plenty of websites offer that info. Just a matter of knowing whether it's important, which I don't think it is, but you may know better.

--sector - how about a 100 day ROC as %? Use the relevant sector index.

--management quality: Number of times announcements disappoint market in the last 5 years? Lincoln indicators would prob do this for you.

--macro factors should be reflected in the companies financials, so you might need not consider them??


tech is suggesting that it's good to test this. I think there may be some software that backtests on fundamental data, but I'd have to Google that.

What fundamentals to test? You couldn't go past: http://www.thepatternsite.com/Fundamentals.html

 

[Klogg]

Every one has their own interpretation of indicators, volumes, strengths and weaknesses. I find it helps to have a sale target in mind before you buy and when it hits your target sell and lock in your profit. Don't lose sleep worrying over missed profits if it goes higher, there will be plenty of other opportunities.

But if fundamental circumstances change, does this mean I move my sale target?

 

[burglar]

But if fundamental circumstances change, does this mean I move my sale target?

"The answer lies in the soil"

 

[Garpal Gumnut]

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.

I must admit I am more conservative, logging 5-10% in gains waiting for the break to a wave 3 and on the downturn, after the toppy bar, taking the 5% profit, and then picking the stock up on the retracement to support. CSL and RIO being recent examples for me.

gg

 

[Klogg]

And in about 5 years from now if you haven't thrown in the towel you will have gone full circle and be back at square one and using the reality of the daily and weekly price action as a barometer of where a stock is heading (and along with it your funds).

Based on the items you have listed above where would you currently be on LEI and JBH as two examples and describe why (to yourself as well !).

The hardest part of the exit is overcoming the fact that you may have been wrong, you see that mentality by reading between the lines of a large majority of posts on this and other sites.

I don't know much about those two companies, but taking a look at JBH, if the Debt to Equity ratio sat consistently above 30%, which in this case it sits a fair bit above, except for 2010 (although I'd usually look at financial statements, I've used ComSec this time), I would immediately be questioning whether this is suitable for me.
Not because their interest won't be covered, but because with that sort of leveraging, a small decrease in EBIT results in substantially smaller profits than it would a company of little or no debt.

This is of-course in hindsight, but it's the only way I can answer your question.

That being said, if BRG, or any of the companies I partly own, were to take on substantial levels of debt without a VERY good reason (and none come to mind right now), I'd be selling.