Financial commentators often say that it is harder to decide when or what to sell than to buy a stock. When you are buying, there’s no pressure, you’re just watching and waiting, virtuously doing your homework, analysing earnings and dividend trends, comparing to other stocks.
Then you finally jump and now you own shares in another company. You watch the stock price movements after that for a while. If you were right, the price goes up, you relax and quit watching. If you were wrong, the price goes down, but you hold on for a while, thinking perhaps this is an aberration. Usually it is, the price goes back up and … you quit watching again.
As a buy and hold kinda gal, IFO doesn’t sell many stocks and she doesn’t watch as closely as she advises you to watch. After all, these long-time companies are like family, with little quirks and foibles, but generally friendly and reliable.
Then, since she keeps a languid eye on some key features, she sits up and pays attention. It might be a CEO in the news (HP), or insiders suddenly selling shares after a long period of no action, or a deal going sour (BP).
Now, we never owned BP and never will, but we’ve been in and out of HP once or twice as they suffered (still suffering?) with CEO problems. We think we’re out for good now. We can’t put up with the drama.
Also, keep track of your stocks’ performance in your accounting software. We like Quicken, but Microsoft Money is also good. You can see how, in both absolute terms and percentage terms, all of your stocks are performing. Cut out the underperformers, unless you have a really good reason for keeping them, like high, safe dividend and low p/e.
So, our general rules of thumb for selling are: if you see any change that doesn’t look good, whether in the numbers or the top management. Don’t rush to judgement, but don’t dither, either. If you’re having trouble making up your mind, just put in a trailing stop and let the computer do it for you.