Thursday, 27 July 2017

Selling Decisions Made Simpler

Buying and selling are two sides of a successful investment. But selling can be tricky, especially when counter is deep in the money and investors are caught between realising profit or waiting for further rise.

Selling actually deserves much more attention in one's investment journey, but we rarely accord the same level of analysis and scrutiny to selling as per buying. It  is important as allows investor to recycle their capital into new counters/assets, or keep them in war chest for better opportunities. Sometimes it prevents loss from snowballing, and allow us to preserve our capital. Also, in the grand scheme of things, we need to take active steps in managing our portfolio as there is time to buy, to sell, or simply do nothing.

I analysed some of my recent share sales when it is in green but did not go as well as expected, and attempt to map out the different situations where I thought of selling. The decisions are compiled into a table characterised by judgement in 2 aspects: company fundamentals and price technicals. This table should help me make better selling decisions in future, and I hope it can be useful to readers too.

As an investor, company fundamentals should be the foremost consideration and one should analyse fundamentals first, with an eye on the expected, reasonable performance going forward. After all, buying into a company is essentially placing your faith in its ability to earn higher profits in future, so certain extent of prediction is required. Hence I have further segregated the 'Fundamentals' axis into good or bad future business performance.

For the 'Technical' axis, I am just looking at current price action and not attempting to forecast future movement.

How to make use of the table? First, look at the vertical axis and determine whether the company currently has good fundamentals. Then move on to horizontal axis to see if its price is currently on an uptrend or downtrend.

While the table maps out various selling considerations and help frame the thought process, it is by no means definitive. Investors would still need to make some judgement call with regards to company's present fundamentals and future prospects. For example, with a counter that is currently facing difficulties but its share price been rising, such as some small marine companies in the oil & gas sector, one will have to judge whether its future prospect is good with high possibility of turning around. That will then affect whether the counter should be sold or bought more.

Anyone thinks this can be used to guide selling decisions for some used-to-be-strong companies but now going through a rough patch? Eg. M1, Comfort, SPH?

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