How Do You Decide When To Sell a Stock?
An investment principle that you should keep in mind, is to know when to sell your stocks. This is almost as difficult as knowing when to buy your stocks is figuring out when it’s the right time to sell them.
If a company is performing well with no indication that it’s future growth potential has diminished in any way and you can hold on to their stock until its market price exceeds its intrinsic value.
Or in other words you can hold your stocks until it becomes overvalued.
Sometimes however stocks can become overvalued for the wrong reason, and this can be a warning that a severe crisis is in the works.
The most common event that leads to a movement in stock prices is when companies release news about a new product line or management change.
It can be good or bad news if it’s a positive reaction.
The company’s stock price will rise.
If it’s bad the stock price goes down.
Without question the most important factor that affects a company’s value, and therefore its stock price, is its earnings earnings are the profit a company makes.
And in the long run no company can survive without them.
If a company’s earnings are better than expected its stock price increases but if a company’s results are worse than expected its stock price will fall.
Simple as that.
Another factor is market volatility stock market volatility often leads to stock price declines across the board even for companies with strong business fundamentals.
Market downturns could be due to several reasons changes in the economy.
Profit taking after strong rallies and geopolitical events.
However in such circumstances stock prices may just decline temporarily.
And chances are they’ll recover in a few months.
So you can take advantage of these scenarios to sell your stock at a high price and then buy it back at a lower price.
It’s a simple strategy for guaranteed profits.
Another circumstance you should consider selling your stocks before everything gets worse is when the company suddenly cuts dividends without any acceptable reasons.
As a value investor we understand the importance of dividends.
So you need to be wary when dividends are suddenly cut 90 percent of the time your stock price will plunge because investors no longer feel safe about their investments and they’re so concerned about the business performance.
Know when to sell your stocks, alongside buying at the right time when the stock price is low, results in you making a good profit with the sale.