The stock market and The Basics of Investment


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A sharp earnings disappointment (consider for a few of years) can be a good signal to sell its stock if the firm doesn't have any idea to increase revenue. We could get an example as 1983 the shoe market was saturated. NIKE is the International famous shoe firm. Its revenue was getting down less than $1 millions a year. Then, It had invited Michael Jordan (the World Star) in NBA game team to advertising for the NIKE shoe. Hence, its revenue increased to $900 millions in that year. then, its revenue increased to $9 billions after 10 years later. Its stock's price was around $0.60 (1985). It was $117 recently (sept 2020).

Management of firm have been weakness because of expanding business, and lost control of finance. They need a reorgnization.

A investor should have a target sale price.

Base on P/E of S&P 500

When the S&P 500 is trading at less than twelve times earnings, you should add to stock percentage. Its normal norm is between 12 and 20. When it's trading at more than twenty times, you should subtract to stock percentage. How much percentage to add or subtract depends on your additional personal tolerance for risk or your age. for example, you began investment at 20 year old. Formulas is 20% bond and (120-20=)100% stocks. Now, you are 40 year old. You should adjust as 40% bonds and 80% stocks.

You shouldn't sell good stocks in your long-term porfolio while rare events happend as:

Earnings reducing because economics turn down aren't a good idea for selling. Their business could be back when economics bound back.

We could have some more examples of these

Food poisoning of a restaurant CHIPOTLE - Mexican Grill (2015-2018).

This led to drop its stocks. Its price was $741 (Jul 01 2015) before the event. Price at bottom was $267.85 (Oct 2017) after the event. its price was $1,380 recently (Sept 2020).

The trader known as the London Whale lost at least $6.2 billion for JPMorgan Chase & Co. in 2012

This led to drop its stocks. Its price was $46 (Apr 2012) before the event. Price at bottom was $32 (May 2012) after the event. its price was $140 (Mar 2020) before another rare event pandemic COVID-19(2020).

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