Exit strategy

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16th Jul '14 by maxwe789

7 comments 3403 reads

How do most people work out exit strategies on their stocks?

These screens are great at showing what could be a good buy but I'm not sure when I should be considering selling. Do you sell when the stock falls off the screen? Are some screens designed for buy and hold forever?

Bit lost on defining my exit strategy.

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About the Author

Maxwe789

Premium Member

7 comments

AlanJenkins2

16th Jul '14

I watch my stocks for price movements.When there is a substantial up move,I look to see whether a stock that I own is overvalued.I also keep track of RNS statements.I may sell if there is bad news or news I don't like.

cig

17th Jul '14

Simple: exit strategy = entry strategy (sell what you wouldn't buy).

Ian4321

17th Jul '14

When to sell is a personal choice. You need to decide what suits you and your preferred way of trading or investing. A good starting point is to use Stockopedia's Knowledge Base. Select the Help menu and select Knowledge Base and click on Guru Models - 20 articles. Questions answered there include the following which may point you in the right direction:
What sell rules do you apply to the Guru Screens?
What do the Gurus say about selling?

emptyend

17th Jul '14

Simple: exit strategy = entry strategy (sell what you wouldn't buy)

There is some truth in that.

However, I think there is a massive difference between trading/selling stocks that are well-understood, universally-covered, FTSE100 stocks - and those that have little or no analyst coverage.

With the former, it may be perfectly appropriate to sell when there are significant price moves that appear to be unjustified by the fundamentals or newsflow......but with the second category IMO you should be starting from the point of view that the market price is not being efficiently-determined .....and may be too high or too low, irrespective of what the recent price moves have been.

The post-float moves in the Royal Mail (LON:RMG) share price are a good example of the former. Selling in the 580-615p range could easily have been justified by the post-float over-exuberance, though most people would have taken the money and run before it got there. No change in fundamentals + 30% change in (free market) price was a reasonable selling point.

OTOH, it is widely known that I am a long-term holder in SOCO International (LON:SIA), which I have now held (with some trading in and out) for 15 years. I continue to think the company is both misunderstood and undervalued and so have recently bought a few more. However, I have paid regular attention to selling - and indeed a few years ago was happy to sell modest amounts in the 500-550p range (currently 408p, having had a 40p dividend last year). In fact I used to take the trouble to have my own valuation model, and resolved to sell if and when the share price ever exceeded my valuation......

....that time eventually came - and I didn't act, having convinced myself that there was a good chance of positive drilling news. As it turned out, the share price exceeded my model valuation (then 590p) for only about 48 hours....so I guess the moral of that tale is that when it comes to selling, if you have set up a rule on when to sell, then for heaven's sake follow it though!

intuitive6191

17th Jul '14

I would be very wary about using screens to determine a possible sale. Stocks seem to move in and out of screens quite frequently and if you tried to replicate this in an actual portfolio you would incur significant dealing charges and may also have disappointing investment performance. Also...

Screens are useful for identifying shares that you may not be familiar with. If however you are researching a share independently of screens I find that the screens show buy signals well behind my own research. One share in particular was Lookers which was a buy well before it started appearing in numerous Stockopedia screens.

Obviously once you own a share you will be committed to ongoing research - and I would argue that this is far more useful than what the screen tells you. Your own research will tell you the state of the market (e.g. Lookers - cars) and your own research will have given a view of how good the management is and if it can be trusted. You may also get good local knowledge of how a business is performing if you live near to that business.

Also the screens won’t give you useful clues from the narrative of official company announcements. This is hugely important in trying to decipher what the company is telling you or in some circumstances - not telling you. Quite often a fudged, vague or obscure announcement is a sell in itself.

On a final note many of the forward forecasts that Stockopedia uses for its screens are based on broker research which suffers from the obvious problems. For smaller companies research might not be updated regularly or it might not be impartial i.e. the company has commisioned the research. Or of course it might just be poor research. Hence the screen might not be accurate for forward projections.

None of this is critical of Stockopedia but it does highlight the difficulties in using screens for the purpose you describe.

cig

17th Jul '14

You can remove excess flip-flops with a bit of hysteresis: if the stock is borderline, prefer the status quo. It works with any entry=exit rule.

E.g. with score based screening, you could buy stocks which are top 5% and sell when they're in the bottom 90% (5% buffer). With binary screening, you can setup a looser exit screen with the same criteria as the buy screen but with more tolerant limits.

PhilHofGrowYourDough

17th Jul '14

I've sort of been musing on my strategy and buy/sell approach over here ... http://www.stockopedia.com/content/down-and-out-in-eastbourne-and-grenoble-84742/#6

hope that helps
Phil

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Maxwe789

7 comments

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