THE BEST TIME TO BUY AND SELL



 


INTRODUCTION

 

After all that’s been said, I don’t want to sound like a market timer and tell you that there is a certain time to buy stocks. The best time to buy stocks will always be the day you have convinced yourself you have found solid merchandise at good price­­ the same as at the department store. However, there are two particular periods when great bargains are likely to be found. The first is during the peculiar annual ritual of end-of-the year tax selling.

If you have a list of companies that you’d like to own if only the stock price were reduced, the end of the year is a likely time to find the deals you have waiting for.

The second is during the collapses, drops, burps, hiccups, and freefall that occur in stock market every few years. If you can summon the courage and presence of mind to buy during these scary episodes when your stomach says “sell,” you will find opportunities that you wouldn’t have thought you’d ever see again.

But when you have found the right stock and bought it, all the evidence tells you it’s going higher, and everything is working in your direction, then it’s a shame if you sell.

 

 

WHEN TO SELL A SLOW GROWER

 




·      The company has lost market share for two consecutive years and is hiring another advertising agency.

·      No new products are being developed, spending on research and development is curtailed, and the company appears to be resting on its laurels.

·      Two recent acquisitions of unrelated businesses look like diworseification, and the company announces it is looking for further acquisitions “at the leading edge of technology.”

·      The company has paid so much for its acquisitions that the balance sheet has deteriorated from no debt and millions in cash to no cash and millions in debt. There are no surplus funds to buy back stock, even if the price falls sharply.

·      Even at a lower stock price the dividend yield will not be high enough to attract much interest from investors.

 

 

WHEN TO SELL A STALWART

 

If the P/E strays too far beyond the normal range, you might think about selling it.

 

·      The stock has a P/E of 15, while similar quality companies in the industry have 10-12.

·      No officers or directors have bought share in the last year.

·      A major division that contributes 25 percent of earning is vulnerable to an economic slump that’s taking place.

·      The company’s growth rate has been slowing down, and through it’s been maintaining profits by cutting costs, future cost cutting opportunities are limited.


 

WHEN TO SELL A CYCLICAL

 

The best to sell is toward the end of the cycle. The best time to sell a cyclical is when something has actually started to go wrong. Falling commodity prices is another harbinger. Competition businesses are also a bad sign for cyclicals.

·      Two key union contracts expire in next twelve months, and labour leader are asking for a full restoration of the wages and benefits they gave up in the last contract.

·      Final demand for the product is slowing down.

·      The company has doubled its capital spending budget to build a fancy new plant, as opposed to modernizing the old plants at low cost.

·      The company has tried to cut cost but still can’t compete with foreign producers.

 


WHEN TO SELL A FAST GROWER

 

If forty Wall-Street analysts are giving the stock recommendation, 60 present of the share are held by institutions, and three national magazines have fawned over the CEO, then it’s definitely time to think about selling.

·      Same store are down 3 percent in last quarter.

·      New store results are disappointing.

·      Two top executives are several key employees leave to join a rival firm.

·      The company recently returned from a “dog and pony” show, telling an extremely positive story to institutional investors in twelve cities in two weeks.

·      The stock is selling at a P/E of 30, while the most optimistic projection of earnings growth is 15-20 percent for the next two years.

 

 

WHEN TO SELL A TURNAROUND

 

The best time to sell a turnaround is after it’s turn around.

·      Debt, which has declined for five straight quarters, just rose by $25 million in the latest quarterly report.

·      Inventories are rising at twice the rate of sales growth.

·      The company’s strongest division sells 50 percent of its output to one leading customer, and that leading customer is suffering from a slowdown in its own sales.

·      The P/E is inflated relative to earnings prospects.

 

WHEN TO SELL AN ASSET PLAY

 

Lately, the best idea is to wait for the raider. If there are really hidden assets there, Saul Steinberg, the Hafts, or the Reichmann will figure it out. With so many raiders around, it’s harder for the amateur to find a good asset stock, but it’s a cinch to know to sell.



·      Although the share sell at a discount to real market value, management has announced it will issue 10 percent more shares to help finance a diversification program.

·      The division that was expected to be sold for $20 million only brings $20 million in the actual sale.

·      The reduction in the corporate tax rate considerable reduces the value of the company’s tax-loss carry forward.

·      Institutional ownership has risen from 25 percent five years ago to 60 percent today with several Boston fund groups being major purchasers.



 

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Congratulation you take one more step towards your financial freedom.

This summary from Book-“ONE UP ON WALL STREET”

 

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