Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: zeta1961 who wrote (7)	3/8/2004 10:36:22 AM
From: VIXandMore	Read Replies (1) \| Respond to of 12

Some additional reasons for selling: 1. Strong new competitors. Netflix (NFLX) has been a great success story, but now that Wal-Mart (WMT) has targeted the same business -- including some less expensive offers -- why assume that Netflix will continue to be successful as the same rate. On the tech side, Brocade (BRCD) was flying along as the leader in storage area network switches when Cisco (CSCO) bought out a competitor and started to emphasize Brocade's business. Both Netflix and Brocade may be long-term survivors, but they need to execute perfectly against these hugely successful competitors. Surely there are less-risky places for your investment dollars. 2. When a company is hit with bad news, too often that bad news is not isolated. For this reason, stocks tend to become tainted and take a long time to recover to previous valuation levels. As a result, I always sell when a company disappoints analysts by missing targets for revenue growth, margins or net income. It may indeed be a one quarter phenomenon, but it the analysts and other investors are skeptical, it can be expensive to let the scenario play out for the another quarter or two. Similarly, if a new product launch does not yield expected revenues, if the biotech firm's clinical trials are a disappointment, etc., don't be surprised if it takes a year or more for the stock to return to previous levels. When looking at the income statement, it may be worth remembering that revenue is a harder figure to executives to "manage" over multiple quarters and is a simple barometer for evaluating growth. 3. Warning signs can also appear on the balance sheet, where growth in receivables and inventory can sometimies hint at forthcoming problems. Also be alert to changes in senior management, especially the departure of a CFO. A change in auditors may also signal trouble, as may frequent restructuring charges or any causes of large variations between pro forma and GAAP earnings. It is worth remembering that stock disasters always happen in stages. 4. There are many technical indicators which provide evidence that a stock may be falling out of favor. Two of the most common are the 50-day and 200-day (simple and/or exponential) moving averages. While I use these only occasionally, it is important to know what types of things other investors are looking at. After all, to recycle a tired metaphor...just like handicapping a beauty contest, it's not determining who the objectively most beautiful candidate is that counts, the important thing is being able to determine who everyone else will judge to be the most beautiful. 5. The common theme in this post is that stocks that fall out of favor often stay out of favor for extended periods of time. If you take profits and/or cut losses at the first sign of trouble, you can avoid most long-term disasters.