Selling a stock is a very important part of stock investing. People do bother about when to buy a stock. Selling a stock should be considered as important as buying a stock.
Otherwise it can be a costly decision if not made at the right time or for the right reasons.
Whether you are thinking of selling your stocks right now or at a later date , this article is for you.
You will find out about the 3 reasons why investors do sell their stocks.
This is not a stock advice , please do consult a finance professional before making any investment. This is just a guideline which if you use will be at your risk.
The stock price increased to your estimate of intrinsic value. Most investors have a target price gain of 20-25% for an increase in the stock price. Then it is time to take profit. This is very tricky.
Here is an example.
Let’s say that you bought a stock of ABC at $5 a dollar. You decided to buy around $5000 worth of shares. After a few months or maybe even years , the price increased to $6 per share. This means you made $1000 profit from your investments. Then it is considered a good time to sell.
2.You made a mistake
There is sufficient evidence that you were wrong in your investment thesis and either the stock is no longer undervalued after taking into account the new information/analysis or the business no longer meets your minimum quality criteria.
You bought the stock of ABC because you thought that it was undervalued after all the calculations you made. After a while , you concluded that the fundamental analysis you made were incorrect for whatever reason. Always remember this golden rule in investing , ALWAYS SELL YOUR INVESTMENT if it attains a 10% price drop. This will help prevent massive losses in your investment.
3.You need the capital
This can happen in 2 ways :
1.Buy a better investment
After doing some fundamental analysis on some industries , you find out that there was another stock which have better potential for growth. Unfortunately you don’t have the amount of cash to buy that investment. This should be a good reason to sell that stock and invest it in another one.
Always remember this rule of thumb : Sell your stocks at a reasonable price so that you do not lose money in the process or have gain a reasonable amount of profit.
2.You are in need of the money for personal issues.
Selling is something that is not nearly as focused on by many investors, but it can be just as important as buying well. It’s easy to make mistakes in investing.
In a nutshell
There are also many other reason to sell your stick but we will them for another time as they are more emotional and technical. You must be very careful before deciding to sell your shares. Get as many advises from your personal advisor. Just weight in your options and should the best reason.