Portfolio Manger Russell Muldoon, together with Skaffold’s Jeremy Wilson, explain five reasons to sell a stock:
1. Business performance declines
2. Business value is in decline
3. Share price rises well above value
4. Future growth is less promising
5. A superior investment is found
In Part I Russell explains why he always looks at a business’ historical performance. He says, “When you buy or sell shares, what you are doing is buying a small part of a business. I cannot stress that enough - you are buying a business. And when you do, you are 100% tied to how that business performs… If a business has performed well in the past, whilst not always true, it should continue to do well in the future. If you don’t look at the past, you may get caught holding poor performing businesses that are declining from peak performance levels.”
Reasons 3, 4 and 5 are the topic of Part II: Share price rises well above value, future growth is less promising and a superior investment is found. Using Woolworths Limited (ASX:WOW), Westpac Banking Corporation Limited (ASX:WBC), Forge Limited (ASX:FGE), Decmil Limited (ASX:DCG) and Imdex Limited (IMD) as real-life examples of companies he’d consider selling, or has sold, Russell adds “If the business you hold is an excellent one, one with bright prospects for continued business performance and intrinsic value growth, we generally would only consider selling if the share price is north of 30% in excess of what we think the shares are worth. And even then, we may not sell. Excellent businesses are hard to replace, hence we want to be offered an irrational price to let them go.” Click here to watch Part II.
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