BUYING AN INVESTMENT is easy. It’s determining what, and when, to sell that’s difficult. Yet that’s one of the most important components of investing. A trade isn’t over once the order has been executed — in fact, it has just begun. Prudent risk philosophy and a steady sell discipline are integral to long-term success.
Fundamental analysts would suggest selling a stock when the company’s prospects begin to deteriorate. When the CFO quits, or the new, whiz-bang product fizzles, or if earnings miss expectations, investors should eliminate the holding from their portfolios. It’s a traditional, quaint and money-losing approach.
A company and its stock are two different things. Because it’s the stock that you trade, the company’s performance should be the least influential part of your decision-making process. It’s the stock — and, more specifically, the stock’s position in your portfolio — that should drive the decision-making process. (more…)