When should Investors Sell Stocks?
Many stock market investors often wonder which is the best time to sell their stocks.
Be it profits or loss, there are some situations when an investor takes the decision to sell.
Many rely on instinct or impulse alone.
However, consider these points to take a more prudent decision that wouldn’t leave you repenting at a later date.
Fundamentals change direction
Company fundamentals, business plan and growth projections are valuable inputs that aid investors while making their buying decisions.
What happens if the investor realises that the company has staggered away from its business plan and objective?
What if the investor feels that the new CEO’s strategy will only plunge the company into greater losses?
A drastic shift in the company that could impact its fundamentals adversely is enough reason for an investor to sell.
On the other hand, if a company’s fundamentals are strong, there is no reason to panic when stock prices drop.
Go by a long-term perspective
Some investors sell when the prices go up and book profits.
The up and down movements of a stock’s price are no reason for an investor to make a buy or sell decision.
Stocks are long-term investments that can effectively beat inflation.
Do not sell based on current market conditions or economy.
Unless the underlying business is negatively impacted owing to mismanagement or product failure, staying invested may not be a bad idea.
Rebalance portfolio
A stock could rise so much in a short span that it might be over-represented in the portfolio.Assume an investor had decided to allocate 60 per cent of his portfolio to equity and 40 per cent to conservative debt instruments.
If the good performance of stocks has increased the equity percentage to 80 per cent in the portfolio, it is time to sell some stocks and rebalance the portfolio.
Sell an over-valued stock as a fall is imminent anytime.
It is advisable to buy stocks that are trading well below their intrinsic values.
Volatility in stock’s price
Suppose a stock’s performance is so volatile that it is giving the investor sleepless nights.It indicates that the stock is too risky for the investor’s risk appetite.
Perhaps it is time to sell the stock and replace it with a less volatile stock that matches the investor’s risk tolerance level.
Financial goal
Investors have varied financial goals.
Some save for college/marriage expense of their children, others for their retirement.
If you are nearing your goal, it is time to start selling stocks in your portfolio.
0 Comments