When to sell

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8. Selling in order to reinvest

Mechanical methods can be helpful in deciding when to sell one stock and reinvest the cash in another, more attractive one.

Example

In this case, if your rule is to sell when the PEG equals 1.0, you can hope for a further 33% appreciation in the price of NotSoGreatCo, but a potential 100% rise in that of ReallyGreatCo. That differential makes a sale and reinvestment well worth considering.

But here again, qualitative judgments must be made. Maybe NotSoGreatCo deserves its higher rating, because its earnings are more reliable. Perhaps ReallyGreatCo is experiencing only a short-term surge in growth that will soon fade away, together with its P/E. And so on.

1. When should you sell? 2. What is your overall strategy? 3. Selling for passive investors 4. When to take profits as a value investor 5. When to take losses as a value investor 6. Selling for growth investors 7. Mechanical formulas for selling 8. Selling in order to reinvest 9. Stoplosses 10. The argument over stoplosses 11. Limitations of stoplosses 12. Profit warnings 13. Selling for traders 14. William O'Neil's trading system 15. The most important rule of all 16. Emotional problems 17. Conclusion

• Beyond the Zulu Principle