With the stock market showing renewed life, many investors once again are asking an old question: When should you sell a stock?
If there were a simple answer to the question, there would be no reason to keep asking it. While no method works every time, having a plan of some sort can help make you a more disciplined investor. Here are four popular approaches to consider:
* If you think the stock still has room to move up, but you are worried about it moving down, set a target sale price 10 to 15 percent below the current price. You could give your broker an order to sell at that price, known as a stop-loss order, or watch the stock yourself.
* Sell when you think your stock is too expensive. First consider the P/E, price divided by earnings per share. Some investors also look at price in relationship to sales or to the company's earnings growth rate, a measurement known as PEG. You can compare the numbers for your company with the same measurements for other stocks in the same industry and with the company's numbers for prior years.
Expensive stocks do sometimes get more expensive, but they also are vulnerable to a steep drop if high expectations fail to materialize. If you hold a high flier, be prepared to watch it closely.
* Sell on truly upsetting news. Even if a stock is already down, it still may pay to sell the instant you hear that earnings are being restated or sales have dropped through the floor or some other dire news. The theory is that the first piece of bad news won't be the last.
* Sell when you have a more promising place to put the money. Don't hang onto a stock unless you think the company has a bright future.
Q. Fourteen years ago, I borrowed $4,000 in an unsecured loan. I lost my job and stopped making payments and had not heard from them for more than 12 years. However, I recently heard from a company that claims to have purchased the debt. Do I still owe the money? Is there not a statute of limitations on loan defaults? Wouldn't the original company have written off my loan as a loss? If so, can they legally sell it to another company?
There is a good chance that you are home free. Florida law limits the enforceability of a written debt to five years from the date of the last payment, St. Petersburg lawyer David McEwen said. The period is extended if the borrower makes an additional payment or promises to continue the debt. In addition, if the company gets a court judgment against the borrower, it is enforceable for 20 years.
McEwen suggests that you ask the collection company for a copy of whatever document it is relying on that says you owe the money. Assuming one can be found, it might specify that the laws of a particular state apply to enforcement of the lending agreement. If that's the case, you would need to check the law for that state.
He said old debts can be sold.
"If they can get somebody to pay them for a questionable loan, there is nothing wrong with the sale," he said. "A lot of people buy bad debts in hopes of being able to come up with more money. They don't pay very much for it."
A debt this old should not appear on your credit rating. You might want to pull your report to make sure it isn't there.
Q. I have a small business and am thinking about setting up a SIMPLE IRA as a retirement plan. Do you think that's a good option?
Yes, but get busy because Oct. 1 is the deadline for establishing a SIMPLE plan for this year. "Establishing" means completing the documentation and notifying employees. Most large mutual fund companies offer SIMPLE plans and can help you get yours started. Even if you miss this year's deadline, you can begin making contributions next year.
For 2003, employees can contribute up to $8,000, plus a $1,000 catch-up contribution for those 50 or older. The company also contributes to the accounts. A SIMPLE plan is a way to shelter a substantial amount of money from taxes and encourage employees to save for retirement. As its name implies, it is less complicated to administer than some other types of retirement plans.
- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.
