3 Telltale Signs That Scream "Sell that Stock!"
by Patrik
(Paris, France)
Unloading a stock that has been part of your portfolio for quite some time can be very
tough. In addition, it is really quite common for investors to stay invested in a well-run
company for several years. However, there will come some point when the decision to sell is
an imperative because if buying a stock at the right price is an opportunity to profit; selling
it at the right price locks in that profit.
There are many instances when you are tempted to sell your shares of a company. Market
volatility is the all too common reason that prompts an investor to sell his shares. However,
fear or any emotion makes the worst basis for any investment decision. Good decisions
stems from sound judgment and sound judgment dictates that you should be on the lookout
for telltale signs that tell you it is the perfect time to sell.
Change of Company’s Fundamentals
An early telltale sign that tells you it’s best to cash in on your investment in a particular
company is the company’s financial statement itself. Additionally, relevant reports of
the company’s management and health should also be considered. For example, if the
company’s top management is fired, has quit; or if the company keeps changing its
management. These signs tell you that the company has some internal problems and
therefore, it doesn’t have the right management structure to go the distance. Other signs
like stagnant earnings; failure to procure the necessary approvals of its products from
regulatory bodies; and cash-flow problems are early signs of impending doom.
Its Fundamentals Does Not Justify Its Price
If the stock’s price may soar but there isn’t much change in its fundamentals that justify
the price movement; that could be a telling sign that it’s the right time to sell. The company
may be the subject of unrealistic investor’s expectation and it is hard to sustain such
growth. A good look of the company’s price and earnings ratio would tell if the company’s
fundamentals justify its price movement. If the ratio is much higher than other companies
in the same industry, it’s high time to take advantage of the stocks’ high price since it’s
most likely that it won’t stay high for long.
Inexplicable Sell-Off by Top Management
Top executives of the company often owns large portion of the company’s stocks. If one
executive sells some of his shares, he might want to diversify or he may have his own
reasons for his decisions. However, if several executives begin selling large portion of
their shares, that would tell you something is amiss. It should get you thinking that if top
executives are selling their shares, it might be the best time for you to do the same.
A good investing strategy includes clearly defined entry and exit points. And while you could
have your own personal reasons to sell some of your holdings; it’s also very important that
you be on the lookout for corporate signs that tell you it’s best to get out.
Being on your toes for such signs could spell the difference between substantial profit and loss on your holdings.
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