Thursday, April 3, 2014

Improving on an investor "Exit" Strategy

If you have been investing for some time, you would probably have developed some kind of an exit strategy in selling your assets. Whether your assets are stocks, funds or properties, all of us would have an exit strategy preference that is different from the other. 



For instance, if we are talking about stocks, these exit strategies are probably the most common you would see:

1.) Valuation Strategy - Based on the intrinsic value calculation of a company, you would be able to come up with a valuation figure that you think the stock is worth for. If the stock hits your target price, you take profits off the table and wait for a better opportunity to enter should it drops below your valuation price.

2.) Chart Pattern Strategy - This strategy usually applies to traders who buys and sells through the different chart patterns. Resistance, Support, Double-Bottom, Moving Average are all parts and parcels of trading chart patterns. The gap spread is usually small and traders don't usually hold the trade for long periods of time. They come in and out as soon as they see opportunities.

3.) 52 Weeks High Exit Strategy - Many investors usually sold their stocks once their stocks hit its 52-week high. They look at the stock's historical high to base their sell position. In most cases, the stocks continue the uptrend momentum and create a new higher 52 week high.

4.) Contra Strategy - These investors usually do not have the money to hold stocks for long periods of time. In the short time span, these investors will be able to receive the profit gap difference without having to fork out any amount of money. This looks like a very dangerous move to me.

5.) Pre-Ex dividend Strategy -  This is a strategy which I've contemplated to try in the past and it has bring good results at times. This is a strategy that you sell your stocks before the stock goes ex-dividend and purchase it once it goes lower. For some stocks which I have tried in the past like SPH, this strategy usually yields good results, especially if it is used after the Dec dividend.

As you can see above, there are many different types of an exit strategy and there are no right or wrong, as long as it's proven right for you. For me, I always have a target price for stocks I wanted to exit at. A price that you will not purchase at is probably the price that you will be willing to sell.

 Is there any exit strategy that is particularly more suited to you? Anticipating to hear...


5 comments:

  1. Me is either zero or no-profit-no-exit.

    LOL!

    ReplyDelete
    Replies
    1. Lol. My mother mentality. No profit no exit, small profit run ahhh

      Delete
  2. Previously, I tried (1) & (3) and now just (1).

    Had many regrets applying 52-week high (bang head type). Missed out many good runs such as UMS, Soup Restaurant, NSL because of blind application of this strategy.

    Question to ask ourselves is probably if PE is still very undemanding at 52 week high, why should we sell? If anything, we should hold on to it. Fundamentals can support a higher valuation.

    Part with the stock when the gap between fundamentals and price widens to unrealistic, unsustainable levels.

    ReplyDelete
    Replies
    1. Hi henry

      Thats a pretty good strategy actually.

      Indeed like you said, instead of looking at the 52 weeks high we can base it on multiples pe or other ratio to determine whether it is overpriced. It takes time to master for sure but a good valuer can earn good profits.

      Delete
  3. This post is very useful for newbie investor like me.. Always heard about exit strategy but didn't know that there are a few of them. All a long I just thought to set a % gain target and exit when hit!

    ReplyDelete

UA-57154194-1