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.

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