Can anyone advice on when we should sell a stock? Recently a stock that I have been able to drive down the average cost showed a 6% gain. Unsure whether I should sell it now? - Seedly
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Anonymous

Asked on 23 Jun 2019

Can anyone advice on when we should sell a stock? Recently a stock that I have been able to drive down the average cost showed a 6% gain. Unsure whether I should sell it now?

I am unsure whether to sell it or not because I rly like the business model of the stock and I want to hold onto this stock for long and earn its dividends however I am afraid that this will lead to me not knowing when to sell and miss out on capital gain of the stock.

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You should sell if

  • Company fundamentals decline. Particularly if the business model changes for the worse.

  • Price is overvalued compared to the intrinsic value of the share

There are far worse things than missing out on the capital gain. Sometimes, sitting and collecting dividends can still be a good thing.

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Wallace Chai
Wallace Chai
Level 9. God of Wisdom
Answered on 07 Dec 2019

Hi there.

Only sell when the business has changed it fundamental. Most of the time money was made when you sit tight into good quality stocks. This is where wealth are being created. Do not just sell to lock in the gains as if it is a good quality business, the price will always follow.

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Jonathan Ang
Jonathan Ang
Level 7. Grand Master
Answered on 08 Dec 2019

Sell if

1) Your thesis has changed

2) Company's fundamentals have taken a turn

Let us know what the company is and what price you bought it at, then it will be easier to comment :)

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Bjorn Ng
Bjorn Ng
Level 9. God of Wisdom
Answered on 07 Dec 2019

Hey there,

If you really like the business model and you know that you want to hold this for long, do you feel/know that the share price will grow/exponentiate? What's the reason for the price dropping (such that you can average down), is it just a market knee jerk reaction, or a change in fundamentals? If it's the former, it's probably temporary.

On when to actually sell the stock, honestly it should be "never" but of course it will all just be paper gains. So I think a good gauge to sell is for example, initally you bought it at EV/EBIT 10x. And now it's trading at EV/EBIT 25x. But you have done your valuations and even at 25x is too expensive for this kind of business, you know it's too expensive and that sooner/later, it will retract back to 10x. And that's where you can consider to sell it off, and just keep your initial capital inside :)

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Bibiana
Bibiana
Level 7. Grand Master
Answered on 08 Dec 2019

May I find out from you what is the company and the valuations?

Different companies have different valuations, without the company name, it is quite hard to answer your question :(

Let me know!

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MT2020
MT2020
Level 7. Grand Master
Answered on 09 Mar 2020

There is no right or wrong answer, some people might sell the stocks because they feel that is overvalued while some sell because they need the money. It depends on you.

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Always go back to your investment objective. Understand why you bought the share in the first place.

If you like the business model and it has potential to grow for the long run, then hold it - short term fluctuation is often inevitable.

If the stock has reached its maximum capacity, then sell it and reinvest somewhere else.

At the end of the day, it is all about tradeoff and the last thing to do is to make the wrong decision because of emotions. Therefore, go back to your investment objective to understand why you buy the stock in the first place.

Here is everything about me and what I do best.

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Choon Yuan Chan
Choon Yuan Chan
Level 9. God of Wisdom
Answered on 07 Dec 2019

If you intend to hold into this stock for long term, don't sell it now

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Wilson Nid A Break
Wilson Nid A Break
Level 9. God of Wisdom
Answered on 07 Dec 2019

Sell a stock when you feel

  1. Its overvalued, put some profits back into pocket & wait for correction

  2. Meet your initial investment target, dont want to continue to monitor the stock

  3. Rebalance and deploy funds to other stock prospects, finding a better deal for your capital (opportunity cost)

  4. Company fundamentals no longer sound, flee before the ship sinks

If you intend to hold it long term for the dividends and confident of the company long-term prospects, why bother if some bearish people out there decide to panic sell it. There's a tons of reasons why a stock price would drop, so as long the reason its not due to an impairment of the company's fundamentals, its an opportunity to buy into the dip and reduce your average cost holdings.

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Billy Ko
Billy Ko
Level 7. Grand Master
Answered on 24 Jun 2019

It really depends on the nature of the business

1) Is it a cyclical stock? What was the reason that drove up the price movement?

2) Is it at 52 week highs? How are the buying / selling volumes now?

3) How are the cash flows of the company? (positive cashflows?)

4) Is the dividend payout ratio increasing?

5) Is the Earnings per Share increasing?

Behind a decision is a lot of investigative work, just keep asking why and the answer will come to light

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Eric Chia
Eric Chia, Senior Financial Consultant at Prudential
Level 6. Master
Answered on 24 Jun 2019

If you like the business model of the stock, do you also like the products and services it offers?

Loosely speaking if you do and you're comfortable with the dividend payout rate, then you should keep the stock. But if the fundamentals have changed, especially when you feel the products and services are no longer as they are, then it's time to let the stock go.

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Gabriel Tham
Gabriel Tham, Tag Team Member at Kenichi Tag Team
Level 9. God of Wisdom
Answered on 24 Jun 2019

Few ways you can determine to sell.

  1. Fundamentals of the company has changed. Business outlook start to look bad, profits down, management changed to bad one etc

  2. Maybe the capital gain = 2-3 years of future dividend, you might consider to sell.

  3. Based on chart analysis, is it on uptrend or downtrend, reaching the previous highs, or lows.

  4. Keep long term for dividend and ignore price movement.

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