The next most important question people ask is when they should sell the stock to take their profits. When you need the money? When the price has gone up by 20%? 50%? 100%? Well, as a value investor, you cannot just look at the price to determine if the stock should be sold. You must look at the price in relation to the intrinsic value of the stock. Even if a stock price increases by twenty times, you should still not sell if it is undervalued. This is because when you own the stock of a company that is consistently increasing its earnings & cash flow, the value of your stock will keep increasing over time! By holding on to your shares of stock, you enjoy the power of compounding.

Here are the 5 rules to help you decide when is the right time to sell your shares.

Sell Rule #1: Sell When The Stock Becomes Overvalued

During a strong bull run or during a period of renewed investor optimism, the price of your stock may rise so fast that it begins to overtake its intrinsic value. When you find that your stock is way over-valued, it may be a good time to sell and take your profits.

Sell Rule #2: Sell When the Business is No Longer Great

Even the greatest businesses can lose their greatness one day. This is why you need to regularly review the financial performance and health of the stocks you own once every quarter (when the financial results are released). If you notice a negative change in one of the first seven criteria for value stocks and the change does not seem temporary, then you should sell your shares immediately.

I believe the questions you are probably have about investing are, “How do I get started? How do I actually achieve a 12.08% annual return by buying all the stocks in the Index” How can I achieve a 20-25% return a year by beating the market? “How do I select the right stocks”? How long will it take for me to achieve the returns I want?”

Well, strap on your seatbelt and get ready because I am going to share with you a whole range of strategies I use to multiply my money at millionaire returns. Through my own course of learning to invest over the years, I have found that there are many very different philosophies and strategies that experts use to select stocks to achieve above average returns.

Growth Strategy 1: Buying Markets & Sectors

The first growth involves achieving the same returns as the whole US stock market or Singapore Stock market by buying the market indexes such as the S&P 500 index, Dow Jones Index, NASDAQ composite Index and the Straits Times Index.

This is the most basic strategy that all novice investors should start off with. Executing this strategy successfully involves the lowest level of financial competence but it can make you consistent annual compounded returns of 10%-12.08%.

The holding period for such investments would be usually over one year or longer. Buy sectors or industries that may be performing very well within the whole stock market

Growth Strategy 2: Value Investing

Select specific stocks of individual companies that would outperform the general market and even the hottest sectors. Value investing is the strategy employed by Warren Buffett, the worlds greatest investor and second richest man.

Look at the historical performance of the US stock market over the last 50 years. As we all know, stock markets are measured by indexes. In the case of the US market, the S&P 500 Index (SPX) and Dow Jones Industrial Index (INDU) are the two most common portfolio of stocks used to represent & measure the performance of the entire market.

The S&P 500 Index takes the weighted average price of the 500 largest stocks in the US market while the Dow Jones Index takes the weighted average price of the 30 largest companies in the US. Since the S&P 500′s portfolio of stocks makes up over 70% of the total market’s worth (capitalization), it is more representative of the whole market.

This is what you will you notice about the stock market’s performance. While stocks may be volatile in the short-term, it always goes higher and higher in the long-term. The stock market is always on a long-term uptrend. This means that each low point is higher than the previous low and each high point is higher than the previous high!

Over the last 49 years, Warren Buffett managed to achieve a 24.7% annual compounding rate of return, which means he doubled his money every 2.9 years for half a century! He turned an initial investment of $100,000 into a staggering $42 billion. How was he able to consistently beat the market (only 10% of professional fund managers are able to beat the S&P 500 Index every year) and all the smartest money managers on Wall Street?

Here are two lessons an investor can learn from the master himself

Lesson One: Invest from a Business Perspective

Warren Buffett invests from a business perspective. Most people treat stocks like lottery tickets. Buying and selling based on predictions of whether the price will go up or down in the short term. Based on world events stock prices go up and down randomly and erratically, hence there is no way anyone can consistently beat the market by attempting to predict its movements. Many of these punters know every little about the business operations behind the stocks they own.