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When Should You Sell Your Shares According To This Famous Investor?

Philip Fisher may not be as famous as billionaire investor Warren Buffett. But when it comes to serious investing chops, Fisher has plenty too.

In fact, Fisher had helped teach Buffett how one might look for great companies with strong economic moats surrounding their businesses.

Besides sharing tips on how investors might look for great investing opportunities in the investing books he has penned, Fisher also wrote about when one should sell a stock.

In Fisher’s opinion, there are only five instances when we should sell.

Here they are in no particular order:

  1. When a mistake is made
  2. When the company no longer passes his 15 point checklist test
  3. When there is fundamental change in a company’s management
  4. When the company can’t grow fast anymore
  5. When more attractive investment opportunities appear

Let’s dig deeper into each instance.

When a mistake is made

This is rather self-explanatory, but the difficult part about being an investor is to admit that we have made a mistake.

No one likes to admit that they may have made a mistake. But, making mistakes are a major part of the investment process (I had written about an investing mistake I’ve committed in the past regarding my decision to invest in a S-Chip share). It is impossible for us to be mistake-free when we’re investing.

The key here is for us to recognise any mistakes promptly and sell off that particular investment regardless of whether we’re making a profit or loss on it. Holding on to a mistaken investment will only create more trouble down the road.

When the company no longer passes his 15 point checklist test

In the book Common Stocks and Uncommon Profits, Fisher had written a great deal about a 15 point checklist that he had used to find great companies which then go on to become wonderful investments.

Fisher felt that he should only invest in companies which are able to clear those 15 points because they are the characteristics which promising companies with great potential ahead should possess.

Therefore, it is only logical that he would consider selling companies that no longer meet the 15 point test.

When there is a fundamental change in a company’s management

A change in management can be a big event for any company. It is important for us to evaluate a company again whenever it undergoes leadership changes.

If we feel that the operational chops and philosophy of the new management team has changed for the worse, then it might be time for us to consider selling.

When the company can’t grow fast anymore

Fisher was well-known to be an investor who focused on finding fast-growing companies. Therefore, in his opinion, it’d be time to jettison a company’s shares if its high-growth days are over.

When more attractive investment opportunities appear

The key thing here to note is the risk of plonking your capital into a lousier investment after selling an earlier one.

Only if we are able to find another company that is growing faster (and available for a reasonable price) than our current holdings, does it make sense for us to sell what we have.

Foolish Summary

The selling guidelines set by Fisher might not be suitable for everyone. But, it is still interesting to gain a window into the mind of a great investor like Fisher and observe how he thinks.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.