Selling the stocks – should you? Shouldn’t you? Is this the right time?-these are some of the most difficult decisions before the investor. When to hold them and when to loosen the hold is a tricky question. The decision to purchase the shares is not that difficult. Selling the share is like giving away the daughter in marriage. To decide about the financial implications and the emotional parting of the bonding!
The investors, who sell shares on the basis of analysis and calculations of loss or gain, are a minuscule minority. Majority of them sell in panic. When the shares take the downward trend, or when the entire market goes through recessionary phase, they sell!—and perhaps commit the grievous error in their investing career. This is one aspect.
The second aspect of the selling process is equally dangerous and prone to losses. If you make a wrong decision when to sell, apart from losing a big chunk of our profits, a part of your capital may be wiped out.
Make buying and selling a simultaneous operation. That is to say, while buying, be clear about motive and the selling options and implement them scrupulously.
Sometimes, an investor may reach the goal sooner than anticipated. This happens in the Bull Phase of the market. You have two options. Sell as per your original plans, or raise the stop level and revise the selling schedule. Selling is a continuous process of education.
Some of the points to be noted for the decision to sell the stocks are
- Continue to monitor your goals in relation to your original decision.
- Analyse the situation again when you reach your initial objective.
- If you have not reached your goal within the stipulated period, and you are nowhere near the goal, that means the company is facing certain problems. Study the balance sheet and the latest financial statements, the market conditions in relation to the industry, and take the decision. This is not the time to hesitate. It is preferable to sell the stocks immediately. If still not willing to sell, readjust the schedule, and at the same time take the final decision—how much you are willing to lose.
- Evaluate the overall position of your stock portfolio, fix the final stop loss limit for the share in which you face trouble, and act accordingly. Get clear of your emotions. They have no role to play.
- Once the final stop loss limit is decided, measure your stock against similar ones in the same segment of the industry.
- If you see a better option elsewhere, avail it. Hold on, but don’t be greedy to hold on without the support of the acceptable analytical results.
- Selling too early is bad; selling too late is worst.
- There are no 100% perfect buying and selling activities. Be satisfied with an intermediate option.
- What is important is your core strategy; one or two slips or gains do not matter much.
- Give equal consideration to your present holdings than the anticipated ones relating to the future.
- The share that is shooting up, greater gains also means greater risk. The fall could be with even greater speed, leaving you with no time to react. Be watchful and careful.
- Buy below the fundamental value and sell when it exceeds the fundamental value. This is the normal rule. But company-specific factors may influence your decision.
- Not the broker, not the friends, but history is your best guide. Study the historical performance of the share astutely.
- Another relevant factor is the earning yield per share.
- Some extraordinary issues like scandals may intervene. Take the decision to sell or otherwise quickly, depending on your assessment of the situation.
- See that the performance of your portfolio doesn’t tilt towards one or two stocks. You may have to take the decision to sell the stock whose price is rapidly increasing.
- Accept your wrong decision and sell that share, even though it may hurt your ego. Exit is better than getting suffocated.
- Sell an over-valued stock. Selling the shares of a particular company doesn’t mean that the door to invest in that company is permanently shut. When the over-valued portion gets knocked off, due to the play of the market forces, buy again.
These are some of the cautionary rules. Every situation is different, and every selling option has its own convincing reasons.