2. Check List for Selling Stock for Long term Investors
What parameters we need to check to exit from a stock
Hello Investors,
When we are taking entry in to a stock for long term, we should think for decades, minimum investment time horizon should be 5Y.
Selling decision is much more import than buying
We can follow some checklist so that will get a view about company to exit or not.
Deteriorateing Operating performace
Goverment starts interfering with pricing policy & profitability
Change in business dynamics
Portpoilio contains of so many stocks like zoo
Stock is very small portion of the portpolio
Deteriorating of Operating performace
While we are looking for long term we need to look for yearly wise performance of the company, mainly Revenue growth, Profitability growth, Margin growth Year on Year, we shouldn’t take based on single quarter results, becuase it may have their own business related issues, so mostly we need to concentrate on yearly performance.
we need to look for Balance sheet, Inventory ratios, Levarage ratios to know busines stregth or is it effecting any thing by taking debt?, these will effect future business growth.
Government starts interfering with pricing policy & profitability
If govt starts controling pricing changes, then it’s not a good sign for the business, company should face those issues, in such cases Revenues & Profitability will be impacted, If we can take recent example IRCTC, govt planned to take some revenue share, so in such cases, company has to loose some profits(but at last withdrawn that changes), these kind of things will happen in city gas distribution comapanies.
Change in business dynamics
When a company changing current busines to newer busines segments then we should track careful, if that new business does not played well then it will turned out to be losses, sometimes we may face USFDA restrcition for pharma companies, it may last for years, we need to track in depth, if we are not comfortable then better exit irrespective of profits & losses.
Portpoilio contains of so many stocks like zoo
If we have some many stocks in portpolio then it’s very difficult to track that business, normal portpolio should contain 6 to 30 max, here tracking means
Quarterly Financial results
News about the business & industry
Sharehodling pattern/Pledge details
Credit reports/concalls
Annual reports
Reducing more number of stocks to lower number also getting more confidence on busines, we can filter positives & negatives of those business, so if you are not able to track business then take exits
Stock is very small portion of the portpolio
If we have taken a stock entry, then if it starts rallying then valuations will increas in such cases, we might not take entry, then it will become lower allocated stock, in such cases either we can increase allocation based on valuation or can take exit & try for other good valuation stock.
If we are not give exact allocation to stock, we might not see much returns, if you have conviction on stock then take much allocation, then only we can see much wealth creation.
Finally exit should not be based on price, it should be based on busines impacts, so while exiting no need to think of profits or losses.
End with Warren Buffet Statements “In the short-term the market is a voting machine, but in the long-run it acts as a weighing machine”
I thank to Dr Vijay Malik for his contribution, these are from his writings only, but simplied, if you want more details check here
Some fun facts: If want to learn patience & self control → Wash your teeth with brush using LEFT hand(if u r a right handed person) vice versa, it’s my personal experience.
Still have doubts, please comment here, we can discuss more