When is it time to dump a Stock? An overview of WheelieDealer’s Sell Triggers - Part 5 of 5 !!

As per the Title, this Blog is the last one in this astonishingly lengthy saga. To read the other 4 (alternatively, you could poke your eyes out with a blunt chopstick), please click ‘Selling Rationale’ under the ‘Categories’ heading for this Blog Page.

Chart goes Vertical
This selling trigger came into my mind this week when some of us were discussing The Biotech Growth Fund BIOG on Twitter. What fired my thinking was that I see it time and time again (unfortunately, rarely on stocks I own !!) that a Share Price Chart “goes vertical”. Some chartists refer to this as “going parabolic” (para-bollox more like !!).

When a chart makes this kind of sudden, sharp, move up, it is just simply NOT SUSTAINABLE - so it doesn’t take the most piercingly sharpened knife in the block to figure out that it is gonna drop like a Brick pretty soon. Don’t get caught - the common reaction is “oooh, look at me, I am a trading God, a legend of Wall Street and the London Stock Exchange, I am the most amazing Investor in History, move over Warren - the youngsters are coming through, I am flippin’ totally brilliant me and look how much money I have made so damned fast and it is going to keep on going up to the moon !!”

“oh, no, it just fell 70% in 2 days……..”

Yep, total muppet. Don’t be part of the Sesame Street Club. When a chart goes Vertical - get Topslicing. Sell into the Rally and take advantage of the demand and shift your stock onto a less clued up Muppet.

Major Overhead Resistance on Price Chart
This might take some explaining - but here goes. Many people claim to not look at charts - but this bemuses me. Charts contain so much information and sort of represent a collective ‘memory’ that the market has.

Think of a Stock where the Price has been in a nice Uptrend and then the trend breaks and the stock falls away from a Peak - this is especially important if the Peak was an All Time High. This Peak level then becomes an area of Very Strong Resistance and it will be hard for the Share Price to ‘Breakout’ above the Resistance Level.

When this kind of situation exists, I often will sell part of my Holding or perhaps all of it if the Stock is not great Value on a Fundamentals basis after the run up. If I still believe in the Stock and want to stay with it, then I might just sell half at the Resistance Level. If it does Breakout and is still good value, then maybe I will buy more again - as these kind of Breakouts of Strong Resistance can be very good buying points.

I am seeing this kind of Overhead Resistance on loads of my Charts at the moment. I think this needs a piccie - so here is Peppa Pig !!

---

---

If you can zoom in, you will see my comments about All Time High and Strong Overhead Resistance at 360p. Please note, this Chart is from a couple of weeks back, but it illustrates the point.

Guru Tips
I am really thinking here of Simon Thompson from the Investors Chronicle, but it probably applies to any significant ‘Guru’ who has the Power to move the markets.

The issue for me is that I have several Stocks that Simon Thompson has tipped - some of them I was in before him. However, the danger is that at some point in time, he will say “Sell” - firstly via the Investors Chronicle Website and then in the Paper Magazine. If this happens and you still hold the stock, then you are probably going to take a big hit - 15% or so is possible on the Small Stocks he tips. This means you need to sell out before he does - so don’t be Greedy.

Another Guru impact comes from Evil Knieval the infamous Bear Raider. The worst thing that can happen is for Evil to get his claws into a Stock that you hold. This happened to me earlier this year on PLUS - but after much consideration I came to the conclusion that Evil was wrong this time, and I have stuck with it - although I did halve my Position as I know Evil has a lot of power. The clincher for me was that they paid me a huge dividend - if it was really dodgy as Evil claims, then there is no way it could keep paying these huge dividends. But this is unusual - Evil is normally correct - best not to get on the Wrong Side of his trades.

***UPDATE*** since writing a Draft of this Blog where I put in the above Paragraph, I have actually sold ALL of my PLUS holding following further comments from Evil Knieval. My concern is that he is orchestrating a Bear Raid on PLUS and I expect more drip, drip, drip from Evil and his buddies about the stock. Whether there are issues at PLUS or not, it will struggle to make headway against this downward pressure. Please see my Blog ‘PLUS Sell Rationale’ from December 2014 for more details.

One off Events
Sometimes there can be a sort of Macroeconomic or Political Event that may impact one or more of your Stocks. A good example of this was the Scottish Referendum Vote back in September 2014. I was holding Galliford Try (GFRD) for a few years before the Referendum - but they are based in Scotland and there was obviously going to be issues for them if there had been a vote for Independence. It seemed silly to take this risk, so I sold a short while before the Vote.

Any Labour government in May 2015 has said it would “Freeze Energy Prices” so obviously this represents a real risk for Electricity and Gas Suppliers - this is the kind of Risk to consider.

The ‘WheelieSwitch’ Trade
One method I use occasionally is to ‘switch’ out of one stock in a certain sector for another one. In a way, it is a Psychological Trick I play on myself - but it is actually a very valuable approach. If you have read my earlier Blog about Stoplosses (see Blog, ‘to Stoploss or not to Stoploss, that is the Question?’ from 5th November 2014), you will know that I have a mental aversion to taking a Loss on something - yes, I know it is bad, but, hey, I can’t help it. Believe me, I have tried on many occasions. So, instead of beating myself up and fighting an inherent Trading Personality Flaw, I find ways around it. 

Let’s use an example; say, for instance, that you were holding Tesco (TSCO) before the recent set of Profit Warnings. Then the Warning comes out and you realise that there is a big problem. However, due to a Psychological Flaw, you can’t bear to take a Loss on it and you cannot Sell Out. So, the palatable way of dealing with this, is to find a similar company in the same Sector that is doing ok and switch into this. In this example, you could switch out of TSCO and into Booker (BOK) - they are not exactly the same but are close enough so you could feel you were still in the same sort of Investment but you had just taken sensible action due to a problem arising. 

Neat trick hey? Just over a Year ago when Apple (AAPL) was having difficulties and the Share Price kept dropping, a good mate of mine was getting very jittery as he had a big stake in them. He couldn’t make his mind up to take Drastic Action like Selling them, so I suggested he switch from AAPL into Polar Capital Technology Trust (PCT), which had a 7% stake in AAPL anyway - so he was still exposed to AAPL in a much lighter and less Risky way and he could also sleep at night.

Range Trader
I am sure you will have seen me mention Stocks that tend to move within a clearly defined ‘Range’. My Recent Sell on EBAY was precisely this kind of trade - please refer to my Blog ‘Sell Rationale for EBAY’ from January 2014.

The Sell decision on such Range Trades is pretty easy to make. When I buy a Stock to trade the Range, I am pretty much determining from the off where I will Sell. So really the Sell decision comes about as a result of the whole Plan for the Trade that was kicked off when I bought.

The only caveat to this is when the price doesn’t quite reach my upper Sell target - often this means that I have to accept a lower Price and sell out for a smaller gain - although sometimes I just hang on if it is a Fundamentally Strong company and I am happy to hold it. Invariably it will reach the top of the Range at some point in the near future.

Final Point
I wanted to add one last comment - but it sort of fits across all the stuff I have discussed previously. The point I want to stress is that you need to make sure you are Never a Forced Seller. This means never get yourself in a position where you need to sell something for a reason other than the Stock’s own inherent Investment Characteristics - e.g. You could be selling because you need Cash for a House Purchase or you could be selling because you are Over-Leveraged on Spreadbets or CFDs etc.

This is not a good position to find yourself in - ideally you want to be picking up stock from the other Forced Sellers. You need to always be in control of when you pick your moment to Sell - there is so little we can control in the World of Investing - so it is vital that we Do Control what we Can Control……..

That’s it, lots of reasons to Sell a Stock - simples……OK, maybe not,

wd