WEBVTT 00:05.040 --> 00:12.420 OK the final principle that you should keep in mind know when to sell your stocks almost as difficult 00:12.450 --> 00:17.370 as knowing when to buy your stocks is figuring out when it's the right time to sell them. 00:17.400 --> 00:22.200 If a company is performing well with no indication that it's future growth potential has diminished 00:22.200 --> 00:27.660 in any way and you can hold on to their stock until its market price exceeds its intrinsic value. 00:27.880 --> 00:32.700 Or in other words you can hold your stocks until it becomes overvalued. 00:32.700 --> 00:38.130 Sometimes however stocks can become overvalued for the wrong reason and this can be a warning that a 00:38.130 --> 00:40.800 severe crisis is in the works. 00:40.800 --> 00:45.840 The most common event that leads to a movement in stock prices is when companies release news about 00:45.840 --> 00:48.290 a new product line or management change. 00:48.600 --> 00:52.590 It can be good or bad news if it's a positive reaction. 00:52.620 --> 00:54.930 The company's stock price will rise. 00:54.930 --> 00:57.510 If it's bad the stock price goes down. 00:58.400 --> 01:03.380 Without question the most important factor that affects a company's value and therefore its stock price 01:03.830 --> 01:07.680 is its earnings earnings are the profit a company makes. 01:07.760 --> 01:11.890 And in the long run no company can survive without them. 01:11.930 --> 01:17.780 If a company's earnings are better than expected its stock price increases but if a company's results 01:17.780 --> 01:20.720 are worse than expected its stock price will fall. 01:20.720 --> 01:21.810 Simple as that. 01:22.580 --> 01:28.580 Another factor is market volatility stock market volatility often leads to stock price declines across 01:28.580 --> 01:32.970 the board even for companies with strong business fundamentals. 01:33.140 --> 01:37.600 Market downturns could be due to several reasons changes in the economy. 01:37.640 --> 01:42.050 Profit taking after strong rallies and geopolitical events. 01:42.440 --> 01:47.720 However in such circumstances stock prices may just decline temporarily. 01:47.720 --> 01:50.420 And chances are they'll recover in a few months. 01:50.420 --> 01:55.370 So you can take advantage of these scenarios to sell your stock at a high price and then buy it back 01:55.370 --> 01:56.930 at a lower price. 01:56.930 --> 02:00.840 It's a simple strategy for guaranteed profits. 02:00.840 --> 02:05.990 Another circumstance you should consider selling your stocks before everything gets worse is when the 02:05.990 --> 02:10.360 company suddenly cuts dividends without any acceptable reasons. 02:10.850 --> 02:14.220 As a value investor we understand the importance of dividends. 02:14.360 --> 02:20.540 So you need to be wary when dividends are suddenly cut 90 percent of the time your stock price will 02:20.540 --> 02:25.910 plunge because investors no longer feel safe about their investments and they're so concerned about 02:25.910 --> 02:28.540 the business performance. 02:28.570 --> 02:30.630 So that's Principle Number 7. 02:30.700 --> 02:34.720 Know when to sell your stocks in the next module. 02:34.720 --> 02:40.390 I'll teach you how to identify a company's economic Moats so you can easily determine if a company has 02:40.390 --> 02:45.700 sustainable competitive advantages over its industry peers OK. 02:45.810 --> 02:46.890 See you in the next video.