I think as investors one thing we should keep in mind is that there is no one size fits all policy. For me the exits can be due to
a) Growth with High RoCE: Long term compounders, industry tailwinds, the compounding machines. The reason for exit is clearly a deterioration in the industry outlook (like industry headwinds as in pharma), reducing competitive positioning, management’s inability to seize the opportunity.
b) High RoCE with limited growth: These are pure valuation plays for me and a lot of good companies fall into this bracket. For example Mayur, Kitex, Ambika, Accelya etc are all good business with high RoCE and some or other kind of competitive advantage build in but they are not compounding machines. Personally for me these kind of business are good entries at a certain valuation and are an exit at certain higher valuation.
c) Asset plays: Buying a company at a very large discount to its assets and exiting when that discount goes away all the while trusting management to do the right things.
d) New Entrants: If I do find an extremely compelling story I would have to slot that against my current holdings in terms of BQ/MQ, risks and growth and if I see the new entrant to have a significantly better outlook than one of my current holding I would have to exit one of my holdings. There is another style where you trim positions from each of your current holdings, I generally do not follow that.
e) Allocation: If any company’s allocation goes above my comfort zone.
Now coming to what @basumallick said and I think that is an extremely good tool to have. Most of the times when we start looking into a business a smallcap/midcap we do tend to have certain advantages over the market. It could be an information advantage, an analysis advantage or something else. As the story becomes well known the advantage begins to dissipate. It would be unwise for us to fore-judge how market would value the business and it is much better to let it run without worrying about the valuations, at the same time it would be unwise to let the market do the same thing on the downside. Now here too one needs to find different mechanisms/tools depending upon the stock reaction in a secular downtrend, or an event driven movement or a stock specific reason, basically there is no one size fits all.