More than buying a Stock, selling is more tricky. A common question among most investors is : When to and when not to sell a stock.
Below are some of the reasons for selling a stock:
- When your target price is achieved. ( one caveat here is , the share price may go up even after you have sold (booked profit)
- You realised you made a bad choice and invested in a potential looser; Exit ASAP even if you made a loss.
- If you realise the Management isn’t being transparent and involved in book manipulation or involved in fraud etc.
- A better investment opportunity which would give a better return is available
- If the company has shown consistent underperformance for few years, shows no signs of recovery
- When you expect a major correction as valuations have reached multiple times above median PE.(Sell High and Buy Low)
Below are some of the reasons for NOT selling a stock
- When some random advisor says to sell the stock
- When there is correction in market or stock. ( don’t sell in panic)
- You don’t see any major movement in the share price for very long
- When there is no better investment opportunity
- If the conviction with which you brought the stock still holds good at present
- Try not to book profit within one year from date of purchase, as you have to pay tax on your gains.
The above are compilation of points based on what I’ve read, understood and some from my own experience. Feel free to share your thoughts on ‘When to and When Not to sell a stock’ in comment section, I’ll update the post accordingly.