Teh Hooi Ling wrote a piece in Business Times (“When to sell”, The Business Times, January 19-20). In it, she covered aspects of when to sell a stock during a bull phase of stock market.
Timing a sell order on a stock is never easy. You can either sell too early and stock price is still going up or you can sell too late when stock price is on its way down and not catching it at the crest of price movement.
“For me, I’d say that valuation is key. When the stock price runs up to a level that it no longer justifies the risk of owning it, then it’s time to sell,” said Teh Hooi Ling. This is not easy to understand. Two key words, valuation and risk, hold the key to timing the sell order.
Some ideas explored in the article include:
– Valuing a stock using price-earnings ratio (PE) to see whether the stock is expensive or not.
– Opportunity cost of owning a stock. Can money be best deployed in other investment asset class?
– Fundamentals of a business has deteriorated that could not justify current share price of its stock.
– Use technical analysis to make a sell call, such as using Relative Strength Index (RSI).
– Set a target price for a stock and sell it when the price is reached.
I would add one more which I adopt among others. I look at stock indices in a stock market (in particular the Straits Times Index for Singapore market). At a macro level, I make a mental note as to what level of STI to sell and at what level of STI to start buying Singapore equity. When STI reaches a certain level when I feel that the market is overvalued, I will release some shares. I wait out for STI to come down and then I move in again. In this approach, one must have a personal view of level of STI in relation to global economies. It is a forward view of STI.
Copyright © 2013, limkimtong for Living Investment
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