"If you believe you or anyone else has a system that can predict the future of the stock market, the joke is on you."- Ralph Wanger
Sunday, 16 June 2013
How To Sell Like Buffett
When you buy to hold, make sure you have a plan to sell.
The most successful investors go into an investment with an exit strategy in mind. We see evidence of that all over, from names like Warren Buffett, Anthony Bolton and Neil Woodford, through to private investors posting on The Motley Fool discussion boards.
Yet, Warren Buffett once said, "Our favourite holding period is forever," which, at first glance, appears at odds with his actions, because Buffett sells, as in 2007 when he disposed of his shares in PetroChina. Private investors could easily misinterpret that quote and hold grimly onto shares through all events. Doing that is not such a good idea.
What Buffett really meant
I can understand Buffett's desire to hold investments forever; it must be hard finding new homes for the billions he's managing and more convenient if the original investment kept on performing. But the truth is a number of criteria can trigger a Buffett sale.
Perhaps a fuller statement could be "our favourite holding period is forever... but, in practice, we will sell if any of a number of conditions is met".
To draw on a trading maxim, we should 'plan our trades and trade our plans', which means defining the exit criteria before investing and acting on that by selling when conditions call for it.
Beware 'buy and hold'
The buy-and-hold argument is compelling. Most great investors have advised us to take a long view with investments, to sit on our hands, to let winners run, and that the greatest returns come not from buying or selling, but from holding on.
In essence, I think it is good advice. But I think it can be misinterpreted to mean 'buy and hold... and never sell'. The results of such interpretational error can be calamitous for investors. Imagine how buy-and-hold-forever investors might have fared holding the likes of Royal Bank of Scotland, Lloyds Banking Group, HMV Group and Dixons Retail through the last decade.
Buy to sell
The reason for any investment is to get back more than what you put in. So it makes sense to have selling at a profit in mind from the beginning. It also makes sense to aim for achieving as much return as possible, which suggests that it's a good idea to run your winners.
So if anything threatens that outcome, it might be time to sell. For example, you don't want to be holding grimly on to cyclical companies as they roller-coaster up and down economic cycles, or clinging to once-bright investments that have gone ex-growth, or collecting a steady dividend stream as the share price steadily declines, thus annulling your gains. There's no point in any of that.
From the moment of buying shares in a company, I reckon it's a good idea to start looking for an opportunity to lock in gains and that, ultimately, means selling at some point.
When to sell
Warren Buffett sold his investment in PetroChina because of valuation. In other words, he thought the share price overstated the intrinsic value of the company. He didn't cling to any idealistic notion of being a buy-and-hold-forever investor. No, he saw overvaluation as being a threat to his seven-fold gain on the shares, so he sold them and took the money without a second thought.
Here are some reasons that I'd consider selling a share:
* Overvaluation.
* The business goes ex-growth.
* A favourable earnings multiple re-rating occurs.
* The business model changes.
* Deteriorating cash flow.
* Rising debt.
* Director share sales.
* Something happens to cast doubt on the directors' integrity.
* The investment shows a large profit.
* A macro view of current economic cycles.
Last word
As well as selling out altogether based on pre-determined exit criteria, many investors reduce their holding, or top-slice, as share prices rise. That locks in some of the profit thus reducing the risk of reversals wiping it out. Running the remainder for further gains at reduced risk is then an option.
Overall, it's important to focus on when to sell shares as much as it is on when to buy them. Having an exit policy in place beforehand puts you in control of that. Perhaps you have other criteria for selling shares. If so, why not post your ideas in the box below.
By Kevin Godbold
Published in Investing on 16 March 2012
http://www.fool.co.uk/news/investing/2012/03/16/how-to-sell-like-buffett.aspx
Published in Investing on 16 March 2012
http://www.fool.co.uk/news/investing/2012/03/16/how-to-sell-like-buffett.aspx
Friday, 14 June 2013
Quote for the day
"Psychology is probably the most important factor in the market – and one that is least understood." - David Dreman
14-Jun-2013 CSE Trade Summary
Crossings - 14/06/2013 and Top 10 Contributors to Change ASPI
Following Stocks Reached New Low on 14/06/2013
Thursday, 13 June 2013
Quote for the day
"Most leading brokers cannot spare the time and money to research smaller stocks. You are therefore more likely to find a bargain in this relatively under-exploited area of the stock market."-James D. Slater
13-Jun-2013 CSE Trade Summary
Crossing - 13/06/2013 and Top 10 Contributors to Change ASPI
Following Stocks Reached New Low on 13/06/2013
The C=L U=M Principle
Most people like to stay within a range of relative comfort; a range that is self imposed. This is known as your comfort zone. For most of us, the grand majority of our experiences and daily life’s routines are within the limits of what we already know; the boundaries that we set, the fence that we build around us to feel safe.
We tend to ignore the outer limits of this circle of comfort almost all of the time. The unknown is a scary proposition for most. The CLUM principle simply states that COMFORTABLE = LESS OPPORTUNITY & UNCOMFORTABLE = MORE OPPORTUNITY; C=L U=M
The simple fact is: opportunity is in the areas that few are willing to venture. In the circle of humanity, you’re part of the circle. And, in order for you to take advantage of inefficiencies in the so-called system, you must go outside the system. You must, at some point, be a lone wolf. This requires you to be a little different than the “norm.”
You will need to go beyond what you know the outcome is going to be. That’s right; you need take some risks and go outside your comfort zone. It won’t be easy, because most people will tell you you’re crazy or it can’t be done. However, you will likely notice that most of the people who try to discourage you are usually not very successful and the ones that encourage you are generally the more successful people.
Now if you want to be successful and achieve your dreams, this will require a new way of thinking that entertains the idea that we have a much greater capacity for living, for accomplishment and enjoyment; that we can enjoy things that may seem unenjoyable at first glance. And, that we have the capacity to stretch our comfort zone to new limits and dimensions.
When you stretch your comfort zone to a new limit, it never returns back to its old dimension; it becomes your new comfort zone, ready to challenge you to go beyond its limits or walls once again.
Like a game of golf; you’ll never shoot a perfect game of eighteen holes in one. However, you keep trying to improve and stretch your game to new limits and the game is always challenging.
Whenever you hit a limit, whenever you hit a wall or you feel nervous or scared in the face of a challenge or a new idea, view these situations or experiences in life as the chances that you’re given to succeed and reach your true potential. These are the times that you could look back on and say “that was my big break” or “that was when I should have done x”. It’s your choice.
These moments happen all through your life and give you a multitude of great opportunities to accomplish and to achieve your desires if you’re willing to take the risk of going beyond what you already know and try new things. It’s at those specific moments that you are asked to go beyond your limits and stretch your thinking that will, in the long run, define your success.
So, next time you’re faced with a tough decision or a challenge, look at it from a new perspective; tell yourself that this is one of those great moments that life is offering me; a chance to be all that I can be. This is one of the great gifts of life; the natural call to arms. It may not always work out, but these are the moments that offer you the opportunity to be different than most; to be a winner.
Mark Minervini
http://www.minervini.com/
We tend to ignore the outer limits of this circle of comfort almost all of the time. The unknown is a scary proposition for most. The CLUM principle simply states that COMFORTABLE = LESS OPPORTUNITY & UNCOMFORTABLE = MORE OPPORTUNITY; C=L U=M
The simple fact is: opportunity is in the areas that few are willing to venture. In the circle of humanity, you’re part of the circle. And, in order for you to take advantage of inefficiencies in the so-called system, you must go outside the system. You must, at some point, be a lone wolf. This requires you to be a little different than the “norm.”
You will need to go beyond what you know the outcome is going to be. That’s right; you need take some risks and go outside your comfort zone. It won’t be easy, because most people will tell you you’re crazy or it can’t be done. However, you will likely notice that most of the people who try to discourage you are usually not very successful and the ones that encourage you are generally the more successful people.
Now if you want to be successful and achieve your dreams, this will require a new way of thinking that entertains the idea that we have a much greater capacity for living, for accomplishment and enjoyment; that we can enjoy things that may seem unenjoyable at first glance. And, that we have the capacity to stretch our comfort zone to new limits and dimensions.
When you stretch your comfort zone to a new limit, it never returns back to its old dimension; it becomes your new comfort zone, ready to challenge you to go beyond its limits or walls once again.
Like a game of golf; you’ll never shoot a perfect game of eighteen holes in one. However, you keep trying to improve and stretch your game to new limits and the game is always challenging.
Whenever you hit a limit, whenever you hit a wall or you feel nervous or scared in the face of a challenge or a new idea, view these situations or experiences in life as the chances that you’re given to succeed and reach your true potential. These are the times that you could look back on and say “that was my big break” or “that was when I should have done x”. It’s your choice.
These moments happen all through your life and give you a multitude of great opportunities to accomplish and to achieve your desires if you’re willing to take the risk of going beyond what you already know and try new things. It’s at those specific moments that you are asked to go beyond your limits and stretch your thinking that will, in the long run, define your success.
So, next time you’re faced with a tough decision or a challenge, look at it from a new perspective; tell yourself that this is one of those great moments that life is offering me; a chance to be all that I can be. This is one of the great gifts of life; the natural call to arms. It may not always work out, but these are the moments that offer you the opportunity to be different than most; to be a winner.
Mark Minervini
http://www.minervini.com/
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