When Value Managers Sell
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When Value Managers Sell
There are two chief reasons value managers will sell a stock: it stops being a value, or they realize that they made a bad stock pick.
Things To Know
- Stocks stop being good values when they become fairly valued.
Being "fairly valued" is a sell sign
Stocks stop being good values when they become what managers call fairly valued. That means that the stock is no longer cheap by whatever value measure the manager uses. For relative-value managers, that could mean that the stock has gained so much that its price ratios are now in line with industry norms. For an absolute-value manager, that could mean that the stock’s price now reflects the absolute worth the manager has placed on the company.
The stock may lose its lustre
A manager may also sell a stock because it looks less promising than it did initially. In particular, new developments may lead the manager to a less favorable evaluation of the company. Nevertheless, if the stock’s price drops but the manager believes the company itself is still attractive, that may be a chance to buy even more of it.