While buying stocks at the right time and right price is vital, it is equally important to exit your stock investment at the right price and right time in a bid to maximise returns or avoid any losses.
The vast majority of investment advice is geared towards buying, ie., how and when to buy a particular stock. However, while buying stocks at the right time and right price is vital – simply because the buy price is one of the factors to determine the return on any investment — it is equally important to exit your stock investment or sell a particular stock at the right price and right time in a bid to maximise returns or avoid any losses. Here are 10 signs when you need to sell a stock:
1. Buy low, sell high: It sounds simple, right? On the contrary, investing in stocks is a speculative phenomenon, where rise and fall are two sides of the same coin. Yet, “a moderate fall is treated as the death-knell for the bull market. Therefore, it is wise to sell your stocks when the prices are high, and buy stocks when the prices are low,” says Kaushlendra Singh Sengar, Founder & CEO, Advisorymandi.com.
2. After hitting the target: Every investor has predetermined goals to make profit on their investments. Therefore, to achieve those investment goals, it is wise to sell your stock immediately after reaching the targeted price appreciation.
3. When adversity is foreseen: A majority of investors rely on the advice of technical advisors. “It is wise to remain in touch with an advisor and keep a close eye on stock investments and withdraw from the stocks quickly in case you see any loss in the near future,” says Sengar.
4. When company’s earnings deteriorate: It is essentially important to check the regular performance of a company, especially its earnings, and compare them with the earnings of its competitors. If you don’t see any competitive advantage, then it is high time to pare back on stocks to avoid any misfortune.
5. When portfolio becomes lopsided: To rebalance the stock or asset allocation, “it is important to skew the portfolio of stocks intermittently such as 60-40 or 70-30 between stocks and bonds and check the growth. If you find good growth, review your allocation and sell some stock positions to earn profits,” advises Sengar.
6. Update yourself about stock: There’s no hard and fast rule or a magic wand to find out a good profit-making company or stock in any stock market. Some risks of rise and fall in stock prices always remain. Yet, in order to determine when to sell a stock and when to buy, all you have to do is to update your knowledge about stocks. This method will help you sell your stocks at the right time.
7. Merger with other companies: Whenever you get any signal that a company is planning to merge with some other company, it is probably time to sell your stock, simply because the chances of a fall in stock prices remain very high in cases of mergers. And if that happens, you will sustain losses.
8. A better option comes along: We all look for ways to increase our profits. “Yet when the opportunity comes, we often miss the bus. Hence, it is wise to sell your stock whenever you see a better option and want to go for it. However, do it carefully,” says Sengar.
9. Dramatic price changes: It is an open secret that stock prices always rise and fall due to fluctuations in supply and demand. However, sometimes dramatic price changes are witnessed owing to sudden uncertainties in the market. Whenever this happens, it is wise to sell those stocks.
10. Drastic changes in leadership: A drastic change in any company’s leadership often leads to depreciation in the value of stocks as the management’s direction and vision change drastically. Hence, it is quite common to sell stocks in such circumstances.