Ways To Determine A Buy, Sell or Hold Move
How awesome would it be to have the capability to know the perfect moment to buy, sell, or continue to hold a stock? It would be one of the greatest gifts someone could possess, even better than teleporting. Unfortunately, it is impossible to pinpoint the exact time to make a move on a position, it would be absolutely guesswork, but there are certainly indicators which will provide insight to determine a decision.
Whether the crossroads have brought you to make a decision on your portfolio, it should always be part of your long-term investment plan. The choice to buy a stock has better results when the expectation is to hold onto it for as long as possible. This helps to ensure the company being acquired is a great one that possesses the potential long-term growth and value you seek. On the reverse end, the conclusion to sell is not always a bad move. It can be the opportunity to either remove a position before the hill treads down or take the profit to reinvest in another stock that is a much better fit.
To be clear – there should not be a single stock purchased or sold without the proper research being done.
Most financial advisors are trained to embody conservative stock investing. The stock picks they often deliver to their clients are blue chip companies and industry leaders. This minimizes the risk of both the advisor and client, to obviously maintain the client’s account value. The approach from the advisor will likely be to buy shares of Coca-Cola, General Electric, or another blue chip, then hold them for as long as possible, or at least 10 years. Simple advice, decent returns, but the plain approach can put a ceiling on your potential gains. There are more options available outside of blue chip companies.
There are investment strategies which operate by set guidelines for when to execute a buy, sell, or hold move. Growth investors may seek companies with above industry quarterly and annual earnings growth. Value investors buy companies who are considered undervalued at set price targets, especially a low price to earnings ratio.
The emotional temperament is a major factor when it comes down to pressing the confirm button on any trade. Dramatizing the big swings in stock prices will always lead you to making a repulsive decision. When doing so, the state of your portfolio is in jeopardy. Buying in or selling out of a position based on a bad news report more than likely will cause you to lose money. When a stock price is soaring it does not automatically mean there is something special about it. The next day will be a different day and can absolutely continue to rise or head the opposite direction. Also, selling a stock just because you see a selloff causing the price to drop is such a regrettable investment approach. This could actually be the perfect opportunity to hold what shares you already have and possibly add more, as long as the research still holds up strong – the facts do not lie.
Upon each quarterly and annual earnings release, management will also issue a briefing on the forecasted future of the company, called guidance. In this guidance the management elaborates to investors what events are upcoming, what the next quarter or year will present, and the long-term outlook of the company. The guidance is a good source for investors to look to help determine the mindset of the individuals leading and what plans are to come. The guidance may express that the following year will be a period of acquisitions; therefore, earnings may not continue the same growth path as previous years.
Another source for corporate confidence and insight is stock repurchases. Let’s assume most management teams are buying back shares of their own stock for proper reasons. It is normally a good move for investors when companies repurchase their own stock, simply because it could mean the stock is currently undervalued. The cash to make the buybacks could have been used for acquisitions or dividends. No entity is required to repurchase any shares, and if they choose not to, it does not automatically mean the management has little belief in its stock’s value.
The size of the margin is not as important as the consistency is. From year to year the margins may fluctuate due to the release of a new product, which may drive the costs of goods sold up during a specific quarter, but it should maintain a similar level to its previous level. It may not need to be mentioned, but if a profit margin ever reports a negative percentage, then automatically it is a red flag. Not managing expenses is likely the deterrent from a company having solid margins. Rising revenue, low-cost of goods production and expenses, will keep the consistency of margins for strong companies.
An important area to focus on is how revenue is increasing over time. Positive sales growth for consecutive quarters, and then years expresses the company has reached more consumers. This is the hope for all businesses. The larger the consumer reach, the greater the chance to obtain more loyal customers. The more loyal consumers will bring more sales and establish a consistent year to year sales growth, which in turn will attract investors to ultimately drive the stock’s value up.
The growth has to be consistent to be considered worthwhile. If there are fluctuations year to year, then the company shows a lack of stable progress with its revenue. It is always a good move to compare the company’s sales growth to its peers. This is a good indicator of which companies in the industry are gaining the majority of the customer share in the past, and now. The data will show which company is growing at the faster pace in conjunction with their overall industry.
Ignoring the modernization of existing or groundbreaking products is a harmful approach to knowing when to buy, sell, or hold a position. When companies release a new product, investors should listen as consumers are. Just because you may not be buying the product does not mean others will find it an inferior item. The stock price will certainly move on the release of an anticipated product. Whether it is a positive or negative movement will be determined by the reception and how excellent the product actually is.
Sure, it is understandably difficult to know how well a product’s reception will be. And at the same time it is always best to be a shareholder before the product launches and takes over the market to maximize the best possible return. For example: Amazon.com revolutionized the retail market plus developed products such as the Kindle, Fire TV, Echo, and the number one source for all things books. While Apple has taken many existing electronics to create far superior products than its competitors with the iPod, iMac, iPad, and the lion’s share of cell phone users with the iPhone.
Examine The Entire Picture
All financial metrics may appear outstanding and the growth reasonably displays progress, but the overall industry may be stricken by recession spending, higher taxes, interest rates climbing, or possibly a cluttered market. These factors often enough put a stop-gap on certain industries on a seasonal basis. Now, if there are many metrics showing a cause for concern, then the buy, sell, or hold decision should be evident.
The investment journey is long-term. The trading of stocks should be done by a strict set of guidelines. Buy only when the “company” is an outstanding competitor in its industry with tremendous future growth and the stock is undervalued. Sell only when the company’s financials are displaying a clear decline due to management ineffectiveness or there is another far superior company ready to be bought. Hold always the shares that have a long-term, steady growth potential, continue to rise in value, and stand atop its industry and maybe the sector.