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When to sell stocks

Peter Lynch ran the Fidelity Magellan Fund for 13 years, during which time Magellan was the number one ranked general equity fund in America. Peter Lynch wrote the books "One Up on Wall Street" and "Beating the Street" which are filled with his accumulated wisdom.

There is one piece of advice which is pretty easy to understand and apply since it is a purely mathematical principal. We'd like to share this with you:

Peter's Principle #8

When yields on long-term government bonds exceed the dividend yield of the S&P 500 by 6 percent or more, sell your stocks and buy bonds.

Given that the current (as of September 2012) dividend yield of the S&P 500 exceeds that of long-term government bonds, this would imply that bonds are a poor choice right now and that stocks should see a revision to the mean over the longer term (ie. better returns).

This is not investment advice, this is simply our observation (and opinion). Please seek a licensed investment advisor before making your investment decisions.

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