ART OF SELLING

WHAT (NOT!) TO DO WHEN SELLING STOCKS

Presented by: Prashanth G, Blr ValuePickr Forum, Sep 16, 2017

BUYING THE STOCK WHAT HAPPENS
AFTER YOU BUY THE
Do the research STOCK?
Decide to allocate %
capital
Plan to hold for 3-5
years for multi
bagger
WHEN TO SELL THE STOCK? (As per Philip Fisher)
The investor has made an error in his/her
assessment of the company.
The company has deteriorated in some way and no
longer meets your original checklist of purchasing a
stock

The investor finds a better company which promises

higher long term results
WHAT ABOUT THE PRICE MOVEMENT?
Studies in behavioural finance find that, when faced with a
complex purchase, decision-makers tend to anchor on prices
and prices changes as indicators of value.
Decision-makers overweight more recent evidence, and over-
rely on past trends when formulating future expectations.
Being loss averse, investors tend to focus on negative
information when under stress by overweighting the
probability of negative events.
They become more loss averse as downward price
movements remind them of their incomplete personal
control.
WHAT CHANGES TRIGGERS(HELP?) US TO SELL THE STOCK?

Price Movement (Downward, Long pause, Upward)

Macro Environment
Another stock looks better
Valuation Doesnt Hold Good
Capital Allocation
Business Fundamentals Change
SUDDEN UPWARD/DOWNWARD MOVEMENT IN STOCK
Sudden fall, wonder if The future returns will
something really wrong be much lower as the
and should I exit and re- stock has run up
enter again? already and P/E very
high! No more a value
buy!

Stock is correcting
from recent run-up!! The price has shot up
Missed selling at high? so rapidly. I better sell.
Should I sell to keep Anchoring to cost
profit? LOSS AVERSION, RECENCY BIAS, ANCHORING TO COST
STOCK TRADES IN NARROW RANGE FOR EXTENDED PERIOD (?)
Should I sell my stock as Should I sell as my
it is not in market favour? waiting period over?

Trend-chasing, Status Quo Bias

HOW TO HANDLE THE PRICE MOVEMENT
You shouldnt look at how much money youve
made, but look at the potential value of the
business 10 or 15 years down the road and then
take a decision.

Source: http://www.morningstar.in/posts/40807/
bakshi.aspx
Focus on the playing field, not the scoreboard. (Buffet)

Too many investors look at the score board; they tend to

focus on the current stock price, the current P/E multiple
or the percentage gain in the stock price in relation to the
gains in some index or some other stocks.

Source: http://www.morningstar.in/posts/40807/bakshi.a
spx
HOW TO HANDLE THE PRICE MOVEMENT
Any good stock with better future will be selling at higher
PE. High PE doesnt mean over valued when compared to
future prospects

For a growing company very difficult to attribute right PE

because no one can estimate growth accurately

Overcome anchoring bias!! If stock is moving up,

better to average up and if stock goes down and
fundamentals havent changed average down
WHAT IF YOU FIND BETTER STOCK?
 Some respectable
You think new company guy loading new
better than existing one company shares and
and want to invest in you want to enter
that! that

Lot more coverage of New findings of beaten

new theme/industry down stock
and possibility of Regret Aversion/Representative Bias
multi bagger (Dont want to miss new one)
If something is working for you, and you dont have cash
and if something else turns up and you like it a lot, then you
should sell whats working for you only when what you
want to buy will give you a significantly higher expected
return . Otherwise, just hold on to your great businesses
and let them compound your capital for you

Source: http://www.morningstar.in/posts/40807/bakshi.a
spx
MACRO ENVIRONMENT CHANGING (MARKET SENTIMENT?)
 Want to see, because
Market is crashing, better exit overall market looks
now and enter at low runup, so have some
price(Demonetization time!!) cash

Will buy at lower

levels, as stock might
Macro environment
become cheap
The best time to invest is when you have
money. This is because history suggests it is not
timing which matters, but time (John
Templeton)

Never try to time the market. Be very stock

specific and evaluate if your stock will be
affected or not?
 Analysts and other
Stock is fully priced, high are giving sell
PE may not move further ratings

Future growth less to Stock market cap

meet current valuation quite big and you
Valuation Wise want to be in
mid/small cap
Keep asking following question on valuation..
Has business or product deteriorated
significantly?
Was I wrong on my assumptions?
Is management integrity gone wrong?
Any negative surprises?
Will not I buy the stock at this price?
Final summary
Just like buying strategy, keep a written down selling
strategy
Continue to work on it as you get additional insights
Stick to it with no exceptions
Dont sell based on price. Price is what you pay,
value is what you get. Use price to your advantage,
not as an indicator of the company fundamentals.
Q&A