Whilst constant buying and selling of stocks will likely prove to be your express ticket to the poor house, regularly reassessing your investments and reweighting your portfolio is an important thing to do.
Recognising when your winners have run too hard is important, as well as knowing when to cut your losers.
Should I Hold or Sell?
Generally your stockbroker will issue a 'sell' recommendation when they believe a stock will not beat the S&P/ASX 200 (INDEX: ^AXJO) (ASX: XJO) index, or similar. However, more likely than not, they're getting paid via commission whenever you decide to sell your shares and therefore have a bias towards getting you to make a decision, rather than just holding on.
If you're a long-term investor, the only reason you should sell a share in a company is when you've lost faith in its ability to deliver on your long-term goals (remember there's also likely to be a tax consequence for selling big winners).
However if a share price has run far ahead of your expectations, that could also be a prudent reason to sell. However if you're confident of its future and plan to hold for a number of years, the best course of action is to just sit there and do nothing.
Westpac Banking Corp (ASX: CBA) and Commonwealth Bank of Australia (ASX: CBA) are currently at the top of an investment cycle and appear very expensive. For example, they trade on price to tangible book ratios of 2.73 and 3.25, respectively. With interest rates low and a recent fall in bad debts, I think now is a good time for long-term investors to start thinking about the decade ahead and how they should position their portfolios to benefit.
In my opinion Telstra Corporation Ltd (ASX: TLS) is the perfect example of a stock worth holding at today's price of $5.62. Whilst it's expensive at its current valuation, the long-term picture for Telstra looks bright. With a wide economic moat (competitive advantage) and reliable fully franked dividend, I'd gladly hold Telstra through a market correction.
To buy or not to buy?
Deciding to buy a company's stock is relatively easy. If it's a great company trading at a good share price (determined through rigorous analysis), it's more likely than not a worthwhile addition to your portfolio. However investors should always ensure they have a wide margin of safety and the upside potential far outweighs the chance and severity of a loss.
Two companies I recently bought for 2015 and beyond are Altium and BigAir Group Limited (ASX: BGL). Both are small tech companies which trade cheap, considering their long-term potential and ability to deliver superior shareholder returns.
