One Up On Wall Street
The Best Time To Buy And Sell
Peter Lynch says that, "The best time to buy stocks will always be the day you've convinced yourself you've found solid merchandise at a good price—the same as at the department store.”
The annual ritual of end-of-the-year tax selling, and institutional investors who like to dump the losers at the end of the year so that their portfolios are cleaned up for the upcoming evaluations present some opportunities.
He writes that all the compound selling between the months of October and December enables in driving the stock prices down. Moreover, during collapses and hiccups also the stock prices are driven down every few years.
He asks his readers to stay away from stock market advice and tells them to avoid paying attention to external economic conditions like if the rate of interest is going up or down or if the company is heading into recession.
Peter Lynch points out the times when one should sell a slow grower
1.When the company has lost market share for two consecutive years.
2.When no new products are being developed, and the spending on research is curtailed.
3.When there is a recent acquisition of two unrelated businesses and company 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.
4.He says that even at a lower stock price, the dividend yield will not be high enough to attract interest from investors.
Peter Lynch points out the times when one should sell a Stalwart:
1.If the P/E goes too far beyond the normal range, one might think about selling it and waiting to buy it back later at a lower price. One may also consider buying something else.
2.New products introduced in the last 2 years have had mixed results, and others still in the testing stage are a year away from the marketplace.
3.The P/E of the stock is 15 and when companies of a similar quality in the industry have a P/E of 11-12.
4.No shares have been bought by officers or directors last year.
5.The company’s growth rate has been slowing down. Though it’s been maintaining profits by cutting costs, future cost-cutting opportunities are limited.
Sell a Cyclical Company when:
1.The best time to sell it is towards the end of a cycle. But one should know when that time is.
2.According to him, an investor can get a signal when the future price of a commodity is lower than the current, or spot, price.
3.Lynch mentions that competitive businesses are bad for cyclicals but suggests that it is a good idea to sell them when the final demand for a product is slowing down.
Sell a Fast Grower Company when:
1.One should watch for the 2nd phase of rapid growth or whether the company is entering a phase of maturity or not.
2.When the stock has high recommendation and is popular, it is time for selling.
3.When employees and executives leave a company to join another rival firm it seems like another good time for selling.
4.The stock is selling at a P/E of 30, while the most optimistic projections of earnings growth are 15-20 percent for the next two years
Sell a Turnaround Company when:
1.The best time to sell a turnaround is after it has turned around and is known by everyone.
2.When there is a debt that has been declining for five quarters and suddenly rises by at least $25 million in the latest quarterly report.
3.A rise in inventories at a rate which is twice the sales growth rate.
4.It can be sold when the P/E has increased with respect to prospects for earnings.
Asset Play company should be sold when:
1.The shares sell at a discount value and the market has announced it will issue 10% more shares to help finance a diversification program.
2.There is a reduction in the corporate tax rate which considerably reduces the value of the company’s tax-loss carry forward.
3.Institutional ownership has risen from 25 percent five years ago to 60 percent today.