Appendix C

Deciding on Sell Prices

After you have followed Chapters 2, 3, 4 and selected your stocks, you may continue to hold your stocks and enjoy your “paper profits.” But in these volatile times, even the best stocks have their volatility.

As discussed in previous chapters, after doing proper homework, you will have a better appreciation of a stock’s intrinsic value. When market prices exceed the intrinsic values, you may wish to cash out and realize the fruits of your labor.

In order to protect your original principal and conserve your future “investment bullets,” you may wish to put “cash out” mechanisms in place. Since investors have various investment goals and risk considerations, I propose the following three “sell price” methodologies for your consideration.

A. Preset Sell Price Based on Percentage of Original Price

This methodology is the simplest of all, in that it involves the least amount of thought and setup time. If you are a shorter-term investor, you may decide on a sell price based on, say, a 5% variation. For example, for a $100 original price, your sell price would be either $105 or $95. Obviously, you will be pleased if you gain $5 or 5%. Some short-term investors prefer this methodology, as by gaining 5%, say, for even 10 times a year, the return on investment (simple calculation basis) would be 50%, nothing to be sneezed at.

On the other hand, in case you sell out at $95, a loss of 5%, you would be unhappy. However, it is not the end of the world as you ...

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