Selling on Company News Events
Selling decisions can be some of the most difficult moments for investors. Market events often force these decisions, and our research — alongside wider third-party studies — highlights some key rules of thumb.
Let’s look at the common scenarios: profit warnings and takeover bids.
Profit Warnings: Sell Immediately
Profit warnings are frequent, particularly in the UK market. Our research on 245 small-cap profit warnings shows that:
The average first-day decline is around 24%.
Over the next 18 months, share prices continued to decline on average.
The heaviest falls tend to happen in the first six months, but even after that year-long stagnation is common.
This is why the best rule of thumb is: sell immediately on a profit warning. It hurts, but redeploying capital is usually better than holding “dead money.”
In fact, simply selling and reinvesting into an index tracker would have outperformed holding on after a warning. The opportunity cost of waiting for recovery is significant.
The Exception: High-Quality Companies
There are rare exceptions. If the company is truly high quality and the profit warning is due to an isolated event, the shares may recover.
In 2005, the Buncefield Oil Depot explosion created short-term disruption of ASOS’s e-commerce operations and led to a sharp decline in its share price. This actually ended up being a fantastic buying opportunity, and anyone who invested after the event massively profited.
In this case, the business remained fundamentally strong and recovered well.
Our analysis shows that companies with a Quality Rank of 75 or higher are more likely to bounce back after a one-off warning. But beware: most warnings are serial, and one often leads to another.
Takeover Bids: Sell Half on the First Day
Takeover bids are increasingly common in the UK. They typically follow a predictable pattern:
Day one: a sharp upward spike.
After that: gradual price moves as negotiations continue.
Since deals can take up to a year to complete, the upside after the first spike is usually limited — while opportunity cost builds.
A widely used rule of thumb is: sell half when the first bid is announced. This approach lets investors lock in gains but still hold some exposure in case of higher bids.
Case Study: TI Fluid Systems
TI Fluid Systems has faced four takeover offers ranging from 165p to 195p. The share price now sits just below the most recent 180p offer, and management has indicated it would accept 200p.
The price pattern reflects the rule of thumb. The first bid often leads to an immediate spike in the share price. Subsequent bids lead to smaller incremental gains. By selling half after the first offer, then trimming further as new offers came in, investors could steadily realise value without being trapped waiting. Waiting passively can be costly if a takeover deal falls through.
Key Takeaways
Profit Warnings: Sell immediately. Only consider holding if the company is high quality and the warning stems from a clear one-off event.
Takeover Bids: Lock in gains by selling half on the first bid. This balances security with the possibility of higher offers.
Opportunity Cost: In every case, remember that time spent holding uncertain or stalled shares is time lost on better opportunities.
Clear rules of thumb make these tough calls easier. They help investors avoid the paralysis of hope and ensure capital is working as efficiently as possible. Realising your gains in order to redeploy your capital is a great investment strategy. It also allows you to manage your exposure to risky assets. Our next article elaborates on this point: how do you manage an over-performing stock?