Growth investing

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12. When to sell a growth stock

Just as there are no firm rules about when to buy a growth share, there are no firm rules about when to sell it.

In general, the old axiom - run your profits and cut your losses - applies, which means that you should not sell a growth share just because you have already made a handsome profit on it. The shares may still have a long way to go.

The basic rule is: if factors which led you to buy the share in the first place no longer apply, sell it. If, for instance:

• the Chairman delivers a downbeat statement
• the PEG factor climbs above 1.5
• the dividend is cut
• the 'story' has changed
• there are major sales of the stock by directors

This requires constant monitoring of your portfolio. With growth stocks, the story can change very quickly, and when it does, the effect on the share price can be very rapid and very significant.

But beware of selling too early, just because you have enjoyed some growth and want to crystallise the profit. When Warren Buffett bought $1bn of Coca Cola stock in 1988 its shares had already grown fivefold in the previous six years and five hundredfold in the previous sixty years. That didn't stop it quadrupling in the next three.

1. What is a growth stock? 2. Comparison with value investing 3. Traditional characteristics of a growth stock 4. Anatomy of a growth stock - Peter Lynch 5. Ten dos and don'ts from Peter Lynch 6. Jim Slater - The Zulu Principle 7. Earnings growth 8. The PEG factor 9. Competitive advantage 10. Do growth stocks have to be small? 11. A short diversion into internet stocks 12. When to sell a growth stock 13. Other factors 14. Case study of a growth stock - Sage 15. Conclusion

• Valuegrowth Investing - an Investor's Guide
• One Up on Wall Street