Buying a great stock at the right price puts you on the road to being a successful value investor, as I explained

in last week's installment of

Value Wednesday

. But as we all know from playing this market, you need to do more than buy the right stocks if you're going to consistently beat the averages.

That's right, folks. You need to know when to bail out, too. Even the best stocks will sometimes get ahead of themselves or top out in their trading range, which makes for a good time to lighten up on your positions, at the very least. Other times, it's good to get out of a name when fortunes seem to be turning for the worse.

As with buying, there are ways to know when it's time to sell. Below I've listed a few signs of trouble that I keep an eye out for in case any of my favorites start to flag.

So without further ado, here's the list:

  • Silence equals trouble: When you have good news, what's the first thing you do? You tell someone. How about when you have bad news? You probably don't say a thing, right? Well, the same holds true in the marketplace. So if management is unusually tight-lipped -- if it stops providing earnings guidance, for instance -- consider bailing. Take the telecom stocks, such as JDS Uniphase (JDSU) . Don't get me wrong -- I like JDS and think it will make money in the long run for buyers at these levels. But if you'd gotten out when management started complaining about lacking visibility, you could have saved yourself from riding this stock all the way down into the single digits.
  • Watch the margins: Gross margins measure how much money a company is making at the most basic level, before taxes and other variables. A company whose margins are declining may be having trouble keeping its cost structure in check, which will eventually eat into profits, one way or the other. If the core business isn't growing and margins aren't holding up, it's only a matter of time till the stock follows suit.
  • Monitor mergers: Big M&A deals always sound exciting, but in many cases they don't make shareholders richer. Quite the opposite. The most obvious case of a big deal not meeting expectations recently is the AOL Time Warner (AOL) blockbuster, which closed almost 18 months ago. At the time the deal was announced, in January 2000, the logic was that creating a huge media empire would create cost savings and synergies that would propel the stock price ever higher. But the ad market fell apart, and as usual, the synergies couldn't overcome the company's many problems. And this in a deal that, while it took some time to come together, avoided many of the possible pitfalls such as disabling management clashes and burdensome regulatory demands. The stock has now lost more than two-thirds of its value since the merger closed. Bottom line: Mergers that go awry can destroy shareholder value. So keep your eyes peeled for any problems.
  • Don't let the door hit you: Now that so many companies are based on intellect and insight rather than manufacturing muscle, it's really true that the biggest assets walk out the door every night. That can mean bigger problems for companies when key employees leave. To put it another way, folks, if you ever hear that Michael Dell or Warren Buffett are retiring, seriously consider selling. Of course, it's not always that simple: WorldCom (WCOM) didn't get penalized when Bernie Ebbers left, though it didn't exactly rally on the news, either. In any case, this can be a key indicator.
  • Follow the story: Sometimes it pays to go contrarian. When everybody is talking up a company, and Wall Street is gaga over earnings prospects, it may be time to move on. Terrific example: In October I recommended a company in my newsletter called InVision Technologies (INVN) . At that time the stock was just south of $10, and the company was poised to get a bunch of new orders for its bomb-detection equipment. After my recommendation the company was rolling in new business and the press picked up on the story. But by the next month, it was apparent the stock was trading on emotion rather than the fundamentals -- so I bailed at $25.15. Today, the stock is back in the low $20s.
  • Play the inside game: When two or more insiders sell after their stock has risen sharply, I consider selling, too. A great example is Sybase (SY) - Get Report, a database software company I bagged in the spring after a flurry of insider selling. And it was a good thing I did, because since that time the stock is down about 11%.

Those aren't the only things to watch for, of course. It's worth keeping an eye on shareholder lawsuits, price targets and earnings, and estimate trends, too.

Most important to keep in mind is that there's always a lot going on with companies that isn't always apparent from the outside. But stay on your toes and you'll be OK, even if the red flags start to fly.

Hey, folks, why not check out a free two-week trial to my

Value Investor


In keeping with TSC's editorial policy, Glenn Curtis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Curtis welcomes your