What is a good time to get out of a stock? Experts debate

Moneycontrol BureauProfessional mountaineers tell you that it easier climbing a mountain than getting off one. Something similar seems to be the case with equity investing as well. Seasoned investors say identifying a good stock to buy is not as hard; the tougher part is to figure out the right time to sell it.At the conference on ‘The Practice of Value Investing’ organized by the NSE-ISB Trading Laboratory, capital market veterans KN Sivasubramanian, former CIO of Franklin Templeton, Saurabh Mukherjea, Chief Executive Officer (CEO) of Institutional Equities, Ambit Capital and stock broker Ramesh Damani discussed the warning signs they keep an eye out for.“If overvaluation becomes substantial, and however you try to justify it but cannot, then it is time to sell,” said Sivasubramanian.Agrees Saurabh Mukherjea of Ambit.“When a one starts justifying same thing in different ways repeatedly, you know there is something fishy,” he said. The other sell signals for Sivasubramanian are changes in the fundamentals of the company or hints of corporate governance issues. Mukherjea lists ill-planned capital allocation as a red flag, as well as loss of the company’s competitive edge over its rivals.“A broker’s favorite (time to sell) is when cycle turns, but one should focus on capital erosion,” Mukherjea said.“It is rare for Indian companies to allocate capital sensibly for over 4-5 years,” he said adding that there were not more than 50 companies in BSE 500 which have allocated capital sensibly.Damani is of the view that investors should not be worried about whether the market is rising or falling, as long as they are invested in the right businesses.Damani, an avowed fan of ace investor Warren Buffet is a staunch believer in ‘investing for life’ approach to equity investment. But Mukherjea felt the notion of buying and holding for a long time, let alone for life, was challenging.“It is difficult to find Indian companies that give returns for a longer period of time,” he said.A common point all of them agreed on was that if something looks too good to be true, then it is actually not true. An investor can learn filtering bad stocks only with experience and judgment. One needs to be a critical observer to find the minute discrepancies, they said.(Posted by Rishma Kapur)