My philosophy of selling

Selling is more important than buying. Only after you have sold a business, you have locked in your profits. Every investor must have plans when to sell off his business at the very moment he’s purchasing it.

My investing philosophy is always evolving as I receive new insights from books and the Internet. Previously, I sold my holdings whenever the intrinsic value was reached. That was what I did for Raffles Medical (back in 2009) and for Thomson Medical (in Aug 2010 when I sold off half my stake). On hindsight, even though the price rose a lot, I feel that I should have kept the stocks as the fundamentals were still intact.

So, currently, when do I sell a business after buying it?

If stock has risen much more the intrinsic value calculated, I will still keep it if the fundamentals are still solid and intact. I will only sell such a stock if the fundamentals turn for the worst, management is screwing things up or if the market is getting very overheated and a bubble is forming. I will sell it off as there is no value left in the business according to my intrinsic value calculation. I can use the funds to buy other undervalued companies during a crisis. I can even buy the same company if the price falls much more than the intrinsic value with a margin of safety.

If a particular stock has not yet reached the intrinsic value, I will keep it even if there’s going to be a recession or market bubble. I can buy more of the business at a cheaper price when the prices fall for the short-term out of fear. I will never sell such a business to “buy it back at a lower price” as one cannot time the market accurately. Not even the best of the best economists can do so.

When I buy a business, my aim is to keep it for the long-term (5-10 years or more), provided the business fundamentals are intact so that the compounding effect can take place. Einstein has once said that compound interest is the eighth wonder of the world and I’m a firm believer in it.

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10 thoughts on “My philosophy of selling

  1. HI,

    “Selling is more important than buying. ”
    I think both are equally important.
    But I like to tilt to the buying side.
    I believe these:

    “The Essence of Investment Management is the Management of Risks, not the Management of returns”, Benjamin Graham.

    “Therefore Proper Allocation of Assets and Entry Level are the 2 most crucial actions.
    Nothing you can do is better to Control Risks and Generate profit,” Dick Davis.

  2. HI,

    Like I said both are equally important.
    So it is up to you to think whether the egg comes first or the chicken.
    Of course, sometimes we guess wrong.
    But I like to think your buying must be right first before you have the opportunity to sell right.
    If your buying is not right, then where is the opportunity to sell right?
    Right?
    Wrong?

  3. Hi telstar,

    I didn’t say your way of thinking is wrong. Different people will have different opinions and everyone is entitled to their opinions.

    Don’t worry, I didn’t play down what you have said. What you have said makes sense also. Cheers!

  4. Hi FF,

    Yes, don’t worry- I agree completely.
    We are all here to learn from each other.
    To exchange the knowledge we have gathered and gathering.
    At times, also our experiences, hopefully.

    No one here should be “offensive”
    Neither should anyone here feel slighted.
    Anyone who is offensive and feel slighted normally has very low self-awareness.
    A person with low self-awareness, is difficult for him to survive in the stock markets.

    Anyway, I feel this world is wonderfully amazing because everyone of us is unique.
    Due to this “uniqueness,” our world keep on progressing.
    Don’t forget because of our “uniqueness” then the stock markets can exist.

    Just imagine for a moment, everyone of us is the same what will happen to this world?
    Kaput? Yes? NO?

    Here I like to share a quotation:

    ” Everyone has a right to his opinion. But no one has a right to be wrong with his facts.”

    Don’t worry, be happy.
    Shalom to you.

  5. Hi ffnow,
    Just curious how do you calculate a company’s intrinsic value based on the fundamental figures?
    I find this is crucial in value investing, but kind of subjective across different individuals. Do you mind share your approach on how to determine a share’s “intrinsic value”?

    Best regards

    • Hi Phileas,

      Sorry I don’t reveal how I derive the value. There’s no hard and fast rule and the value obtained is not holy grail. It’s just a ballpark estimate and different individuals may get different values depending on the discount rate and growth rate used.

  6. Hi ffnow,
    Thanks for the fast reply, glad to exchange views with you.
    I think determining the intrinsic value requires good understanding of economics, business, and lots of experience. I shall learn about this and improve along the journey of investing :)

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