Selling Stocks

When to sell stocks

It has generally been observed that most investors find it easy to make an investment decision but when it comes to selling the stock they find themselves in the dark. You may have purchased the stock after a careful analysis. Yet if the situation changes, warranting a review of your decision, you should not hesitate to reconsider your policy. As an intelligent investor, you should know when to sell your stock to book profits or to avoid loss. Selling stock is an integral part of the investment process. Go through the following arguments and then decide whether you wish to retain or sell your stock.

The fear of making a loss

The primary reason why people hold on to their stock is that they are afraid to make losses. In a stock market, you make loss only when you sell your stock. Even though the prices of the stock have fallen, you do not actually make a loss till you actually sell it. Before selling, research the market reports to ensure whether the fall is temporary, for example, it may be because of the cyclical nature of the company, or due to a one time factor. In such scenario, chances are that the stock will pick up. On the contrary, if the performance has gone down due to more permanent reasons, you should sell your stock. This way even though you will make a small loss you will be spared from making a bigger one when the prices actually hit rock bottom.

Is the stock overvalued?

It is important that you continuously update yourself with the performance of the company whose stock you have bought. In the financial world, too much of a good thing may spell trouble. When you find that the price of a share has gone beyond its true value, immediately sense there is trouble. The best option is always to sell when you find that the stock is overvalued, and buy it back when the market forces bring about a correction. Remember selling an overvalued stock makes more business sense than buying an overvalued stock.

Major changes in the company’s management or policy

If there is a major overhaul in the policy or the management of the company whose stocks you are holding, take it as a signal to sell your stock. This is because you bought the stock based on its fundamentals and its sound business model. If there is a change on the very basis on which you make your decision, you should sell its stock. For example, if the company has a new CEO, the person may take it off the direction it is presently pursuing.

All said, if the share deserves to be sold, you should not worry about recovering losses, if any. Sell the share, recover the money and invest in another company with a better track record and a promising future – for this is what the game of investment is all about.