With yesterday’s impressive 889 point rally on the Dow, many people are starting to think that maybe it is okay to be invested in the stock market after all (well, until the next big drop). But decisions to buy and sell should be based on more than what everyone is doing and how that happens to be affecting the stock market. The Motley Fool offers three signs that it is time to sell a stock:
- Management issues.
- Competitive disadvantages.
- Unstable financial model.
I have to say that I agree. (Well, who is going to disagree with the Fool?) I am a big fan of looking at the fundamentals. Since I am a long-term investor looking for solid value — even if the returns aren’t large and fast — the fundamentals are important to me.
Management issues
Is the management of the company selfish? Is management inept? Or both? These are clues that what’s best for the shareholders is not something that the company is really worried about. The Motley Fool suggests these as clues regarding management issues:
- Active insider selling
- Declining market share
- Excessive executive compensation
- Aggressive accounting
I’d also add in there a lack of transparency with regard to corporate governance and accounting. If management doesn’t want you to see what is going on, there is probably a reason.
Competitive disadvantages
Choose companies that have some sort of advantage over the competition. If you see that a company whose stock you own is at a distinct disadvantage, it is probably an indication that you need to consider selling. This disadvantage could cause problems later. If, however, the company has a disadvantage that it is working to correct, it might be wise to withold final judgment for a time — provided you have the time.
Unstable financinal model
One of the reasons my retirement account hasn’t been terribly hard hit is because the companies in it don’t rely on devices that make the company fundamentally unstable. Financing companies and investments banks that made their money on derivatives (basically insurance against debt) were banking on a model that is fundamentally unstable. Indeed, a great deal of consumer debt is unstable, and if a company relies heavily on that sort of thing, you can see where trouble might arise. The Motley Fool recommends that you consider these items when looking at a business model:
- Rising (or at least stable) margins
- Control over working capital
- Sales that increase steadily
- Solid balance sheet
If you find that your company is lacking in at least two of the three areas, it may be time to get out before the whole thing comes crashing down.Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
- Management issues.
- Competitive disadvantages.
- Unstable financial model.
I have to say that I agree. (Well, who is going to disagree with the Fool?) I am a big fan of looking at the fundamentals. Since I am a long-term investor looking for solid value — even if the returns aren’t large and fast — the fundamentals are important to me.
Management issues
Is the management of the company selfish? Is management inept? Or both? These are clues that what’s best for the shareholders is not something that the company is really worried about. The Motley Fool suggests these as clues regarding management issues:
- Active insider selling
- Declining market share
- Excessive executive compensation
- Aggressive accounting
I’d also add in there a lack of transparency with regard to corporate governance and accounting. If management doesn’t want you to see what is going on, there is probably a reason.
Competitive disadvantages
Choose companies that have some sort of advantage over the competition. If you see that a company whose stock you own is at a distinct disadvantage, it is probably an indication that you need to consider selling. This disadvantage could cause problems later. If, however, the company has a disadvantage that it is working to correct, it might be wise to withold final judgment for a time — provided you have the time.
Unstable financinal model
One of the reasons my retirement account hasn’t been terribly hard hit is because the companies in it don’t rely on devices that make the company fundamentally unstable. Financing companies and investments banks that made their money on derivatives (basically insurance against debt) were banking on a model that is fundamentally unstable. Indeed, a great deal of consumer debt is unstable, and if a company relies heavily on that sort of thing, you can see where trouble might arise. The Motley Fool recommends that you consider these items when looking at a business model:
- Rising (or at least stable) margins
- Control over working capital
- Sales that increase steadily
- Solid balance sheet
If you find that your company is lacking in at least two of the three areas, it may be time to get out before the whole thing comes crashing down.
Tags: stock market, stock market rally, investing blog, sell stock,
fundamentals, investments, retirement account
