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Non-Tech : How to Sell Stocks -- Ignore unavailable to you. Want to Upgrade?

To: VIXandMore who wrote (4)	3/4/2004 11:55:33 PM
From: Skeet Shipman	Respond to of 12

Hi Bill, Here is a recent interesting article on setting price targets: Investor's Business Daily Use P-E Expansion To Find A Target Sell Price Thursday February 26, 10:21 am ET By Nancy Gondo biz.yahoo.com Bargain hunters try to pick up stocks at low prices. As a result, they could miss out on the best growth-stock winners. Those seeking value often use price-to-earnings ratios, or the current share price divided by forward or trailing 12-month earnings per share, to gauge which stocks fall in their buy range. They avoid stocks with so-called high P-E ratios or those priced above the market. But many of the best stocks trade at a premium when they break out of bases. You may have to pay more for these stocks, but that's the norm when seeking industry leaders with the best products or services and top-notch growth. Unlike good bases as seen on a chart, the P-E ratio won't help you time when to buy a stock. It can help you forecast how far a strong stock can rise. This is a secondary sell indicator. So always employ sound sell rules to know exactly when a good stock should be sold. In general, the P-E of a great stock rises about 130% during the stock's price run. An IBD study found the average P-E ratio of the 95 best small- and mid-cap stocks of 1996-97 grew 123%, from 39 at the pivot point to 87 at their peak. You can use this as a rough guide to figure out a stock's target price. First, multiply the stock's P-E at its breakout by 2.3. Then multiply the result by the next full year's estimate for earnings per share. There's your target price. If your stock approaches or reaches that level, check its chart for sell signals such as the ones detailed in this column. You can find the P-E ratio (using the past 12 months' earnings) in IBD's main stock tables on Mondays, Wednesdays and Fridays. Schnitzer Steel, which topped IBD's list of best stocks last year, had a P-E of 16 when it broke out of an eight-month base the week ended Feb. 28, 2003 (Point 1). At that time, the recycled scrap steel exporter's pivot was 11.43 (adjusted for a 2-for-1 split in August that year). Using the above formula, multiply 16 by 2.3 and you'd get a P-E peak target of about 37. Multiply that by the next four quarters' profit forecast, or $2.35 at that time, and you get a target stock price of 87. Midway through its run, you might have gotten worried about the stock's rapid rise. In the week ended Sept. 26, Schnitzer slumped as much as 18% (Point2). But the P-E was just 20, well below the P-E target. The stock's P-E was 29 when it lost steam in January 2004 and headed into a sharp correction (Point 3). Its P-E grew 81% from the breakout to the peak of 63.79, still about 23 points below the target stock price. Those who bought Schnitzer at the pivot and held it through the peak gained more than 450%. The market and Schnitzer have slowed down. But if the stock finishes its new base, it may take a crack at reaching its target P-E and price.

To: VIXandMore who wrote (4)	3/6/2004 11:29:35 AM
From: Skeet Shipman	Respond to of 12

Hi Bill, Another article for when to sell long term holdings. When should I sell a stock? Allen F. Investors often spend a great deal of time researching stocks and when to buy them, but not enough time figuring out when it's time to sell. This can come back to haunt you, so it's best to have some framework for deciding if it's time to part ways with a stock. Times They Are A-Changing One question to ask is whether a company's fundamentals have deteriorated since you purchased the stock. Even companies that have performed superbly for years can sometimes lose their way. If some of the shining prospects that originally attracted you to a firm have dimmed, it could be time to reassess your outlook for the company. One good place to start looking would be the financial statements. Perhaps once-hefty profit margins have steadily inched downward of late as more aggressive competitors have come on the scene. Or, maybe what looked like a smart acquisition two years ago has degenerated into a morass of asbestos litigation. Or, market share may have fallen off as the company struggled to pump out innovative new products. When re-evaluating the company, we like to distinguish between changes that are temporary blips, such as seasonal shifts or a slightly delayed new product launch, and those shifts with implications for the firm's future, such as an increasingly uncompetitive cost structure. If you see that the fundamentals are indeed declining and seem rooted in changes that are longer-term in nature, it may be time to consider selling the stock. Everyone Makes Mistakes Despite all the careful research we do, investing in stocks is not a science. Even professionals often get it wrong. Some renowned investors, like Bill Miller and Bob Rodriguez, are happy if they can get 70% of their stock picks right. That means that even the world's greatest investors get it wrong at least 30% of the time. To provide some perspective around my own stock mistakes, I keep in mind what John Park, portfolio manager of Liberty Acorn Twenty Fund (Nasdaq:ACTWX - News), told me--all that matters is having more right picks than wrong ones. Sometimes you might uncover some new information about the firm or management after you've already bought the stock. Maybe you've learned that the company has made liberal use of "special-purpose vehicles" to hide debt. Or, perhaps the new CEO you thought would lead the firm out of its doldrums has become embroiled in a culture clash with the employees. In any case, it's usually not worth keeping a stock when you find the original rationale for buying it no longer holds true. It's better to cut your losses and move on. This is often easier said than done because human nature makes it difficult to admit we're wrong. Harboring Risk Over time, you may find that some of your stocks have zoomed up in value and now make up an outsized portion of your portfolio. If any single stock makes up more than 10% of your portfolio, you should think carefully about how much risk you're taking on. Even if you believe the company's prospects are still favorable, it's not a bad idea to think about taking some money off the table to rebalance your portfolio and lower your risk. In the case of taxable accounts, you'll incur a larger tax bill on the stock gains, but it's still wise to prune the holding to reduce your exposure to risk. Keep in mind that different sectors, industries, and companies will perform better under different conditions and at different times. So, even if an outsized holding in your portfolio is performing well now, it's unlikely that stock will always deliver positive results. Reaching Intrinsic Value Though we like to keep our eye on how much we believe a firm is really worth, the market will often give a company more credit than it deserves, reflected in a stock price that's above the firm's intrinsic value. If you find one of your stocks in this situation, you might well think about locking in gains by selling some shares, especially if the company has a narrow or no economic moat. Wide-moat stocks, on the other hand, warrant a different approach. Companies with strong, sustainable competitive advantages, such as Johnson & Johnson (NYSE:JNJ - News), Dell Computer (NasdaqNM:DELL - News), and Coca-Cola (NYSE:KO - News), are likely to create value over time. As a result, these firms often see their fair value increase over the long term. We're generally reluctant sell wide-moat stocks, even if they pass through periodic phases of modest overpricing. Because wide-moat stocks seldom sell far below fair value, it may be quite difficult to buy them back cheaply once you've sold.