On the most basic level, an investors ability to profit on the stock exchange involves two key decisions. Firstly, knowing when to buy stocks and subsequently selling them at the right time. To really reap rewards from the stocks, you have to make both of these decisions smartly. Many investors struggle when it comes to selling a stock which is partly as a result of human greed. With that being said, however, there are certain strategies that can be implemented to help identify the best time to sell stocks. So, if you are an investor holding stocks here are some tips that should help you make an informed decision about when to sell stocks :
When Buying The Stock Was A Mistake
Even seasoned investors who’ve done their homework, make mistakes from time to time. If you’ve bought stocks only to realise you made an error and these aren’t profitable stock, then you should sell, even if this leads to loss of profit. Learn from your mistakes and try to rely on hard data rather than responding to emotional market swings. It is also important to bear in mind, not all mistaken purchases are as bad as one another. In some cases, the stock could be a bad short-term investment but may prove to be more robust in the longer term. So don’t overreact and sell in a panicked state. Keep an eye on the company’s market share as well, if they seem to be losing this to competitors it may indicate that the stock doesn’t hold much hope for the long-term future either.
When The Price Rises Dramatically
You’ll often find that some of the best investors are humble in their decisions. You may see a dramatic rise in the price of your stock over a short period of time. Don’t assume that this rapid rise is a sign that you are smarter than the rest of the market. A fast rise is often a sign of speculation by others, so consider this a good opportunity to sell the stock. Be grateful for the profit and move on. Another smart move would be to buy the same stock again when the price drops because as the old adage goes ‘what goes up, must come down’.
Based On A Stock’s Valuation
Valuations can be hard to work with. The value of a stock depends on the present value of the company’s future cash flow. As the future is always uncertain, there will always be a degree of inaccuracy in these valuations. A good rule of thumb is to sell stocks when the company’s valuation rises to a level that is significantly higher than its peers. Another idea is to use the P/E ratio and sell when a company’s P/E ratio is higher than its average over the last few years.
At the end of the day, as an investor, you need to realise that any sale of stock that results in a profit is a good move, especially if your reasoning behind making the sale is well-informed. If you sell at a loss but know why the loss occurred and how not to make the same mistake again, this can also be considered a good sell. Generally, as long as a decision to sell isn’t made in haste and driven by emotion, it can always be looked upon positively.
