When will you sell a stock? Recently, a reader asked me when I will totally sell off a stock from my stock portfolio. Totally selling off a stock can also be termed as “Divestment”.
It has been a long time since I divested anything from my stock portfolio. Looking back at some of my old posts, below are some of the stocks that I have divested.
- Goodbye M1
- Goodbye Sheng Siong
- Goodbye Cambridge Industrial Trust
- Goodbye StarHub
- Goodbye Keppel REIT
- Goodbye Lippo Malls Indonesia Retail Trust
- Goodbye SoilBuild Business Space REIT
- Goodbye Suntec REIT
- Goodbye Kingsmen Creatives
- Goodbye The Hour Glass
- Goodbye Frasers Commercial Trust
- NeraTel – An Abandoned Child
That is a total of 12 stocks that I have divested over 13 years of stock investing. I do not buy and sell stocks everyday as that will define one as a “trader”, not a stock investor.
Below are some of the reasons I may divest a stock.
#1 Fundamentals of the company has changed
This is one of the top reason why I will divest a stock totally from my stock portfolio. You buy a stock for various reasons.
If you are a value investor, you buy a stock hoping that the value goes up and sell off for a profit when the stock price appreciates.
As a dividend investor, you buy a stock and collect dividends, ignoring the up and down of the stock price. A dividend investor wants to hold the stock as long as possible since the stock provides endless year on year returns.
The fundamentals of the company can change over time. This can be the company selling off its business or running into financial woes whereby the reasons you buy into this company is no longer valid.
An example will be Neratel whereby the company sold off its payment solution business. The reason I bought Neratel was because of the payment solution business. Since the business fundamental have changed, I decided to divest it totally from my stock portfolio.
#2 When you are satisfied with the profits
You can also sell off a stock when you are already contented with the profits.
For example, I sold off Sheng Siong because I am contented with the profit gain of 68%. Since I sold off Sheng Siong, the share price continue its uptrend but I have no regrets because I am contented with the profits locked in.
If you are a value investor, you should decide the stock price to sell before you buy the stock and stick to it.
#3 Sell when you have something better to buy
This is more of injecting more life into your stock portfolio. When the business of a company matures, the growth of the company slows down.
I usually look at the growth of the earnings per share of the company when measuring if the company is still able to grow at a fast pace. Often, this correlates to the share price of the company.
If I spot a company that the rate of growth is faster than a company that I already own, I will divest the stock and buy into the new company so my invested capital can continue to grow at a faster pace.
As a dividend investor, I also compare the current dividend yield. If there is a stock that offers higher dividend yield, I will sell off a current stock and put my capital into the new stock with higher returns.
A good example will be my divestment of The Hour Glass and recycling my capital into SPH REIT for higher dividend yield.
#4 Delisting of the company
This is not really a sell transaction. When a company delists from the stock exchange, it will usually offer a cash pay out to unitholders.
An example will be Frasers Commercial Trust. This is one of my favourite stock in my stock portfolio. However, due to merger with Frasers Logistics and Industrial Trust, Frasers Commercial Trust has to be delisted.
