Updated: Aug 22, 2021
One of the biggest reason for value investor to pack our back, our investments, our cats and dogs and get out is:
"When the company you invested is no longer great..."
What do I mean when a company is no longer great?
I mean it has stopped being prosperous...
It stopped making money, it made up financial data, it has loss the trust of investors by being dishonest.
These are the warning signs that you should take your investment elsewhere...
One of the worse thing is the company no longer run by honest management.
If any of your investment are in a dishonest company, take it out! now!
If a company didn't do well this quarter, it might come back on the next. However, if a company is ran by crooks, leave now and don't even look back.
But the crooks wouldn't tell you they're crooks!
So don't take people for what they say! see what they do!
Things like financial data manipulation, exaggerating earnings, stealing money from the company, and lying about a scandals are signs of a dishonest management...
When you see anything like these... Run!
These actions can bring down a fortune 500 companies in a blink of an eye...
When a company is no longer trustworthy, its earning data cannot be trusted, and all the book items and value cannot be trusted, and therefore, cannot be calculated.
When a company's value can no longer be calculated, it means we can't value it.
The 2nd reason is...
The stock price is too high.
The stock has gone beyond its fair value, and became overvalued.
Many people purchase stocks based on faith and subjective value...
"I love my Iphone so much, and I would buy Apple's stock at any price."
This strategy could work... if you're planning to hold Apple's stock for 50 years until you make profit.
No company is good enough to be bought at any price...
Unless the price is reasonable, buying with blind faith is not recommended.
Buying a great company at an expensive price could mean delaying profit for many years or even risk holding your stocks for years.
Think again before you invest in your favorite company.
The last and most important reason is:
Leave, when the industry is no longer good.
One of the great examples now is retail industry.
In 2021, the retail industry was severely impacted by COVID 19 and the change of purchasing habits cause by it.
People are switching from retail stores to online purchases at a significant volume.
The retail industry may not be prosperous in the next 20 years or so.
Is it wise to invest heavily into retail now? betting that the retail industry may or may not rebound?
In my humble opinion, when a industry is weakening, it's best to avoid it. Pull your cash out... invest in something more prosperous...
Because investment are meant to be long term, and when an industry's long term outlook is not good, we should reconsider where to invest our time and money wisely.
For your references only!