Our sell discipline is one of the most important aspects of the investment management process. Selling is based on the same three factors we use for buying stocks: fundamentals, valuation and sentiment.
Fundamentals can trigger a sale if they do not keep up with valuation. This can happen either because fundamentals deteriorate or because valuations improve. Valuation is monitored through our price targets of downside, fair and full value, and these targets are re-established periodically by our investment team. This is an integral part of our process because as fundamentals change, so can valuation. Our security management is dynamic and allows price targets to move both up and down to reflect improvement or deterioration in fundamentals. As our discount begins to narrow and fundamentals remain strong, we scale out of positions and may write covered call options as part of our sell discipline. Additionally, if investor sentiment changes more than fundamentals warrant, then a stock becomes a sell candidate. Sell discipline factors include:
- Discount to full value narrows
- Fundamentals no longer justify valuation
- Extremely positive expectations
- Covered call writing
View Results of Flippin, Bruce & Porter’s Value Investment Approach.