If you spend enough time dealing with investment literature, you’ll quickly find yourself a duly neuro-linguistic programmer with the “buy and keep forever” idea. While you’re looking at another dividend-producing stock at close to book value and the CEO is talking about something
Called “owner earnings,” you’ll drool and prepare for dollar cost averaging and drop your way into that thing over a period of maybe a decade, then continue for another four decades until you retire and/or die. And if financial Lutheranism is your thing, good for you, then this is exactly the investment strategy for you.
On the other hand, if you are interested in maximizing the return on the capital you have in business in your brokerage account, you may want to learn how to time buys and sells. Last time in our TrendSpider blog post, we covered how to spot a good buying opportunity – specifically how to use both fundamental and technical analysis together to choose your company and choose your timing. In case you missed it, you can read this post here.
Now let’s move on to how to find out when to sell.
The first rule to sell at the right time is – forget any personal or emotional connection you may have developed in connection with the stock in question. If when discussing a company or stock you refer to “we” in the sense of the shareholders or the company’s broader community, you are in the wrong frame of mind. There is no “we”. There is only the code and the prices associated with it on the screen. It was your best choice ever, worst choice ever, your grandparents worked in the company for 20 years and then met and married at the headquarters? forget that. Just code and price data. Thats all about it.
The second rule to sell at the right time is – take a look at the basics. Is revenue growth accelerating or slowing? Margins regressing or accelerating? Balance sheet getting better or worse? Basics alone aren’t enough to motivate a buy or sell decision, since
Fundamentals are just one entry on the stock price. But if you’re up to date with the company’s core numbers in the shares you own, this can be a wake-up call, a signal to yourself to say… ah, things are slowing down, and the market hasn’t noticed yet, I’d start looking for a selling opportunity if one presents themselves – that kind of thing .
But the real trick is to know when to sell out? Use your stock chart correctly. There are many ways to do this, but our favorite is the one we use to trade personal accounts of employees and the same one we use all over the world. Our stock signals services It is the Fibonacci method and the Elliott wave.
Here’s a working example from Growth Investor Pro service last year. We contacted “Buy” at HubSpot () at $353 and this proved a valid choice. In less than a year, the stock has shed $860 and peaked; We called it ‘Sell’ as the stock fell to $801 and we made a 127% increase. Here’s how we did it – this is a completely repeatable method that anyone who has learned to use in TrendSpider.
First – we don’t care about stocks. It’s just stock. put a mark.
The second – the basics. HubSpot was doing well in 2021 but it’s starting to slow down. Revenue growth declined significantly as was deferred revenue growth (deferred revenue is the prepaid portion, which is not yet recognized from the company’s order book). That was the alert – but just an alert, not a signal to sell now and run for the hills. In fact, if you had sold when the slowdown began, you might have sold in the third quarter of 2021 and left a lot of money on the table.
The third – the graph. Here’s how we drew the stock at that time. (You can open a full version page here.)
In wave 1 it is up from the 2016 lows, peaking in late 2019. It fell to the Covid crisis lows, reaching the 61.8% Fibonacci retracement level in the depths of the crisis. This is the red ladder you see on the left of the graph. Now, after wave 1 and wave 2 comes…wave 3. Which can be fast and powerful moves and I definitely got that. Typical wave 3 tops at the 161.8% extension of the previous wave 1 (this means you take the stock price action in wave 1, multiply it by 1.618, and then measure that number from the lower wave 2 to get the target of wave 3). Very bullish wave 3 can reach the 2.618 extension of wave 1. Wave 3 is very bullish, 3.618. So when we broke out of the Covid crisis and got out of it, exploded through those typical levels, hit the 4.236 extension of the first wave, we said, OK, that’s probably all people. We waited for confirmation and when the stock started falling, we called it a sell.
This is a repeatable method for any volatile stock. TrendSpider’s Fibonacci retracement and extension tools, along with the Poly Line tool, give you everything you need. If you would like to learn more about how to use these tools to identify buying and selling opportunities, take a look at our Substack newsletter, Choosing Cestrian Tech. Comes in Free and Premium Versions – TrendSpider blog readers can sign up for the premium version at 33% off. Start reading the free version, over hereAnd if you want to claim your TrendSpider discount, you can do so over here.
Disclosure: Personal accounts of Cestrian Capital Research, Inc employees hold long positions in HUBS, after repurchasing in the wake of the stock’s decline.
Cisterian Capital Research, Inc – September 7, 2022
Disclaimer: This note is for US recipients only and, in particular, is not directed at any UK recipient and is not intended to be relied upon. Any information or analysis in this memorandum is not an offer to sell or the solicitation of an offer to purchase any securities. Nothing in this note is intended to be investment advice and should not be relied upon for making investment decisions. Cestrian Capital Research, Inc. may have. or its employees, agents or affiliates, including the author of this Memorandum or persons associated with it, holding any stock, security or financial instrument referred to in this Memorandum. Any opinions, analyzes, or possibilities expressed in this note are those of the author as of the date the note was posted and are subject to change without notice. The companies referred to in this memorandum or their employees or affiliates may be clients of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. It is independent and transparent and does not believe this presents a potential conflict of interest or affects the content of its research or publications.