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When to sell stocks

May 8, 2021 by themarathiinvestor Leave a Comment

Hello friends, in today’s article we see when to sell stocks from chapter 6 of common stocks and uncommon profits book. This chapter helps you to understand the selling of outstanding company stocks. The most important question is: when to sell stocks? so let’s see their merit and demerit of selling stocks.

When to sell stocks:

The author says’s ” if you are selling stocks, then we have an infinite reason for that for example, selling stocks for child education, starting own business and buying own house.”

This above all reason is out of this book. The author is only focusing on those reasons that have only one purpose is making maximum profits by selling stocks.

If you are buying stocks on the basis of the previous chapter. Then you have only three reasons for selling stocks.

1 ) The mistake has been made in the Original purchase time:

You have made the mistake while buying stocks that known from the facts of the company. Now this time the prospect of company is not good like before buying time. So in this situation, you have to control your emotion.
You have to remember this, ” big investors also do the big mistakes”, so sell stocks as quickly as.
don’t hold that stocks for the long term, while listening to your EGo. In this situation say no to that stocks and don’t run from accepting mistakes. so most of the investors lose their money while listening to ego and holding that stocks. (When to sell stocks)
In this situation, you have two types of losing
1) the More you hold, the more you lose: Instead of that sell these stocks and buy the better stocks then these tocks hold for the long term so this stock’s profit is more than that previous stocks we hold for long term.
2) Profits have also gone: If you hold those stocks then you lose the profit of better stocks also.
If you really want 100% gain on the investment of your lifetime saving, over a period of the year, then don’t thinking of 10% lose or 5% gain. don’t lose energy while thinking of that loss and gain.
Review your mistake carefully, learn from that mistake and go forward.
In my opinion, Those investors buy the stocks, while analyzing them properly, and after some time those stocks go bad. They going bad they have the fact of that happening and show the reason of that happening.
But investors never believe in that fact, because they are very much attached to that stocks like attach with a girlfriend. (When to sell stocks)
So Those are a trader, these people are not attached with stocks whatever is the stocks. they only put the Stop Loss option. If they had made a mistake, then they don’t lose lots of money because of the stop loss option and they play other trades. I am not saying to become a trader and put the stock lose. I am saying is that take the quality from traders is Deattachment from stocks. and learn this skill of detachment.

2) If the company no longer qualities in regards to the 15 points.

This situation has two reasons for this cause of selling stocks

A) Determination of Management:

Management of the company is long after time getting success. And they are sufficient with that success and after that, they don’t work like before they do to got success.
The new management of the company does not believe in the old management policy. The Old management policy help to get the success for the company. (When to sell stocks)
In this situation, you have to sell stocks as quickly as, whatever the general market outlook. If the market is bullish or bearish and or what is the capital gain TAX.

B) Company no longer has the prospects of new market and new products:

If the above point taken, then that why the growth potential of the company is decrease,s and then the stock price is also decreased.
So in this situation, you can sell these stocks slowly, but you have to consider, the time of selling stocks comes.
Stocks can be sold at more leisure than management deterioration, but the time to sell has come.

3) Switching to more attractive company stocks:

If an investor is very much sure about other stocks is better than these stocks in growth prospects.
then after that, you can be switch whatever the capital gain tax is applicable while selling these stocks. you can handsomely switch to better stocks.
So this that not mean to switch each and every day and become a trader.

Above these three reasons from the author, and the author gives another reason of selling stocks according to the financial institute, consider to sell stocks and there thought and the authors thought on their thinking.

so let’s see financial community reason for selling stocks is good or bad

Reasons financial community gives for selling stocks:

1) General Market decline is on the horizon:

The general market forecast is only a guess, you have to find out the real problem in the company and get the knowledge that does not depend on guess. (When to sell stocks)
If you sell stocks and the bear market does not come, then you got the loss and when investors buy stocks and capital gain tax is also applied. this looks like pure stupidity.

2) Outstanding stock has become overpriced:

Overpriced means the P/E ratio of the company is more than the investor thinking this range is a good P/E ratio. This P/E ratio is more multiple than that P/E ratio, we are considering is good. This can get while considering with other company.
No one tells you the good price of the P/E ratio.
In any common think are good stocks of the company will sell and should sell in higher P/E multiple.
The author says, ” if you understand the stocks is go high as compared to its a fundamental value and 35% can fall down but have a good prospect of the company. then You have to maintain the position in that stocks and not sell at all. (When to sell stocks)

3) Most ridiculous of all is that Stocks has had a huge advance:

This stock’s potential is gone and buying the new stocks and saying these stocks not go high.
The author explains with examples, ” Suppose you have the last day of your college life. Everyone asks you to give them 10X of their first year earning.
instead of that, they give you 25% of his every year earning for the rest of his life. so you don’t have that much money to give each and every classmate in your class.
You can give only three classmates. In this situation you can’t see which is your friends is, you directly see which student of the class is cleaver and those got big earning in the coming future year.
You choose three people, and after 10 years, one of your classmates, get outstanding success. He gets promotion on promotion and gets the top executive post in his company.
So the author says, tell me in this situation, you can sell me a contract of those friends that got great success,
because only one reason is that they get the 600% return on your investment and buy those classmate contract that has same earning before 10 years and after also.
You think like this, classmate does not develop and have the ability to develop. this is like the above third reason of financial community. (When to sell stocks)
Now you say, a college classmate and company stocks are both different things.
the author says, yes one has big difference is, our outstanding classmate get possible death early is not but, he will die one day, definitely.
After his death, we don’t get 25% of his earning.
But a company doesn’t have a lifespan whatever death of the founder has happened, the company is still running, generation after generation.
Those quality and management policy is same and they are hiring new quality management.
For this the author says, this whole chapter in one is

“If the job has been correctly done when stock is purchased, the time to sell its – Almost Never..”

This is all about when to sell stocks from chapter 6 of common stocks and uncommon profits book

When to buy stocks of outstanding company

April 17, 2021 by themarathiinvestor 4 Comments

Hello friends, in today’s article we see when to buy stocks from common stocks and uncommon profits book. this chapter helps you to when to buy stocks of outstanding company. If you buy the stocks at right time then only then you make the maximum money, so that’s why buying time is very much important.

Previous Chapter 4

When to buy stocks:

Up to here, we know that how to make money in the stock market. the best way to make money in the stock market is to invest in an outstanding company. The outstanding company is found by Scuttlebutt Method and 15 points of outstanding company.

Now you found an outstanding company, and that have a good profits margin and have good growth in the future. So the question is here, which is a good time for this outstanding company to invest.

The author says, ” buying a right company and hold for the long term, then you get some profits in every time.”

But you need maximum profits, then you have to think some points and buy on right time stocks.

you have done the most difficult part, is finding an outstanding company, now give some more effort to time the outstanding company stocks. then you have to learn some principles of buying right time stocks.

The author says, ” If you buy outstanding company stocks before 1929, stocks market crash, then after 25 years form buying, you only get little profits. So there is buying stocks at right time is the most important thing.

Timing an outstanding company, the normal method is to collect lots of economic data and apply then and analyze general business forecast and see a good situation or bad situation of an outstanding company.

the author says, ” This looks good method but practically is not good because forecast result is not good for taking risk of life time-saving.”

The right way is to understand the growth stocks’ nature, then you get good stocks. An outstanding company is those are they stay forward in Industry and work on developing a new product by using new process techniques. So doing this company gets lots of expense and some years get minimum profits.

here, the author tries to say that to understand the cycle of business and their product, like some news is an outstanding company is doing some good product and then the price is going high of that stocks. And again news comes, the plant is operating successfully, then also stocks prices go high.

But when difficulties are coming then the operating cost of that plant is going high and profits going down, so people sell as fast as they buy those stocks, then stocks price is going down.

And finally plant is running smoothly, and a two-day going rally on stock prices, but in the next quarter sales and promotion cost minimizes the profits, and now news spread is management has blundered with the company, and stock prices are going low up to least years stocks price.

So this is the best time to buy in this company.

Once the extra sales efforts make the first plant to pay normal sales effort enough for the upcoming year to establish another plant for the company.

So now company know the difficulties of running smoothly plant so 2 to 5 plant running smoothly and it is easy to establish.

that time 5th plant is run an full speed that time company is very big, for to develop new cycle product without profits or stocks price fall.

let’s see the examples of three companies

1.Americal Cyanamid:

These company stocks are compared to other company stocks, trade-in low multiple of P/E.

So new management is come and doing cost-cutting with efficiently to run efficient and spend money of new plant with complex engineering and plant does not work on schedule, so this time is good to buy this company stocks.

In five years this company earnings increased by 70% and stocks returned 163% in their price. but the author sells this company stocks at 110% return on stock prices. Because other companies long-range outlook is better than this company and company chemical business is not improved as compared to other companies and company is trying to enter in the highly competitive textile business.

Which time is good to sell see in next chapter 6

The author says, his decision is good or bad also is only knows the future.

2.Food Machinery and chemical corporation

This Company in world war II, before that they make the different machinery for different business, but in world war II, they making guns, rifles,barud, etc.

This company is going in the chemical business and maintaining the cyclical tendency of the machinery business, and separate companies are acquired and no one interested to buy this company stocks, so this is right to buy this company stocks.

So Top management is ready to hiring other peoples and promoting internal employees. and also doing to fix the old plant problem and run them a better way. Incurred abnormal expenses for 1995 to 1957.

Finally chemical business runs good and profit increases and the P/E multiple is also improved. In some years this company gets a 102% gain in stock prices.

3.Company well-known for its excellent labor relations:

In this company the size is growing at which friction happened and the relation is going bad and one new product also fails, that’s why EPS and stocks prices are going down.

So this point 1, their stock is good for buying.

After that management made plans to correct this situation quickly. After some time another strike happens and the stocks prices again go down.

So this is point 2 when stock is good to buy.

If you buy the stock at point A, get the profits are up to 90% and if you buy stocks at point 2, you get 50% profits.

The authors say’s, ” there is not necessary to have a problem in a company and saying that time is good opportunity to buy.”

So there is another situation also, for example, A new plant expense is up to 10 million dollars.

When the plant is operating at full speed, an engineer checks that plant and they found some problem in that, and this problem is fixed by making a 1.5 million dollar expense i.e 15% more capital to increase output by 40%.

So no additional overhead because the plant is already in operation so the profit margin will increases.

So from this example, the common things are that the EPS is improved in coming years, but this increased price has not yet produced on upward more in the price of that company share.

Whenever this type of condition is coming, then that time is good to buy, and stocks are in buying range. if this situation is not then investors also make money in the long term by buying outstanding company but profit is little.

Suppose investors find out the outstanding company that is good on 15th points and a good time is also come to buy. Suppose in the company there are some temporary issues is going what investor do then do invest in all money in that stocks by ignoring the business cycle?

If you buy stock and depression is coming and 40 to 50% of the stock falls from your buying peak.

So in this situation happen two case

Suppose investors already have some fairly substantial gains, from their previous investments, so this investor can ignore this problem in stocks and guesses of the business cycle and quickly invest by provided not craziness like 1928-29. so this has two advantages of doing this: a) investor is making be on somethings he knows, rather than something which is largely a guess. The company business is improved by talking to people but the business cycle forecast is only a guess, or if the market is down if they invest in that company. b) company is about have an increase in earning so these stocks fall less than other.
In this second case, the investor doesn’t have substantial gains from previous investments or is new to this game. this type of investor can buy appropriate investment asap and stagger the timing of further buying and allow several years still final part of funds are invested. This has some advantage of a) If the market does not decline, then they have good profits from that investment and become the case-1 investor. B) If the market decline during this period, the investor still has funds to take advantage of the decline and use it to buy other stocks. c)If a market decline happens, after the final part of your funds of investment, the gains on earlier purchases would largely offset the decline on more recent ones.

From the all above reason to invest all money, instead that invest slowly for several years is better.

Read More: One Up On Wall Street book