Investors often exit a good stock at wrong time. These situations that dictate best time to sell multibaggers are helpful for them.
Multibagger stocks are one of the biggest wealth creation opportunities for investors. They should be present in stock portfolio of almost every investor.
It is particularly true if you are looking to gain multiple returns from them. Investors usually loves to identify, buy & hold multibaggers for a long time. But, multibagger stock investment is not an easy task. It is a very challenging task that requires investment discipline to tackle them effectively.
One should always enter a potential multibagger at the right price & at the right time. Additionally, one should also sell them at the most appropriate time.
According to the views of David Dreman, a well-known author of Contrarian Investment Strategies, even the most professional investors follow their own sell rules, while several private investors don’t seem to have any at all.
Dreman advises investors to pick a reasonable sell point when buying a stock & exit when it is achieved. However, picking a sell point doesn’t mean that selling a stock just because stock has surpassed its target price.
Investors can retain stock as long as it has lower valuation ratios or lower intrinsic value. But, once it is crossed handsomely then you should perhaps sell your multibagger stocks. This profitable strategy will prevent investors from repenting later. Here are 10 alarming situations that dictate best & right time to exit multibagger stocks:
[You can also watch an exciting video on this post from GetUpWise channel on YouTube.]
(1) Stock Price Exceeds Extrinsic Valuations
It is one of the most surprising situations that dictate best time to sell multibaggers. Extrinsic valuation is the value of a company in relation to the total size of external opportunity. The size of external opportunity means the total size of industry or market or the sector a company is working in.
A high extrinsic valuation indicates that the company’s market capitalization either approaches or exceeds the total size of external opportunity. At this time, investors are highly aggressive on a rising multibagger stock.
They are willing to pay higher price for a promising company. It is worth thinking about exiting from such wealth creators. But, rarely, if ever, you will find a company with 100% market share.
However, if investors & speculators are ready to provide higher stock valuation to a potential multibagger then you should not follow them blindly. It will be best strategy to sell multibaggers to them at this stage.
In technical terms, you should sell a company with market capitalization to opportunity ratio of greater than 1. This conservative approach will help you to book profit in multibaggers at the right time.
- Best Time To Sell Multibaggers: LinkedIn