Choose the right time to buy or sell stocks can be a dangerous business. Even with a lot of attention on the stock by very knowledgeable traders fund managers and investors, analysts and media personalities, academics, in fact no one knows the best time to buy and sell.
This of course does not prevent people from giving advice, whether officially or not. The vast majority of this advice is geared towards making investments. Of course this is because this is the way the vast majority of people earn commissions and fees.
While the people also bear some of the costs of the sale of their investments, they can only do so after having made the investment in the first place. Industry also tends to earn less money when people sell their investment because it is common for financial institutions to charge a percentage of the funds they manage.
Why is it important to know when SellDollarsAndSense often support the concept of long-term investment. There’s no reason investors should act like trading stable in their investments in short periods of time.
While this is our opinion we also think it’s important for investors to know when to get out of investments to ensure the preservation of your long-term wealth and devastating financial losses. This is often easier said than done as a lot of will be influenced by greed and fear when it comes to selling the investment.
Consider a scenario when the stock turns negative our emotions may affect on the United States to quickly sell at a loss based on fears that have no basis even though the company is basically sound. But this is exactly when long-term investors will in fact be seeking to buy undervalued stocks.
Read Also: 4 loss strategies experienced investors love embrace
An example of this when Warren Buffett invested in Goldman Sachs during the financial crisis in 2008 or when Temasek Holdings poured more money in Singapore listed Olam International when it was the subject of reports that he was in dire financial straits in 2015.
Instead, some of us may stubbornly hold on to losing investments because we don’t want to regret our decisions when recovering. This can lead to huge financial losses if the company is nose-diving. This played out when another Singapore listed company, Noble Group, this other than that the market capitalization of $ 400 million a day from its peak at 10 million in the early 2000s.
On the other hand, when we are sitting on the profits, our emotions may lead us to sell too soon or don’t sell end up losing money also held the positions because we don’t want to miss out on more profits.
These scenarios show that these decisions are rarely clear-cut. Often, as they are purely fueled by emotions instead of understanding – that makes it important for investors to know when you should sell.
How do you know when to sell? This is a question that investors often struggle with after the purchase of the stock. As discussed in the beginning, no one really knows the best time to buy or sell the investment. However, you can take the emotions out of the equation through the development of investment strategies in place to guide your decisions.
We highlight four common ways to go about determining when you should sell the stock.
1. Error in determining stock
The wrong one can lead to sell your stock when you select the wrong opportunity to invest.
This can be in the analysis of the company’s fundamentals or expectations in the market. It could be that you are wrong idea of the aviation industry will boom translated into increasing revenues and stock price the airline gives its share in the market. Or it could be that you really thought the airline industry would be a boom but it didn’t translate to relatively larger revenue to the company as lost market share.
In any scenario, what if the company’s share price moves up or down, made a mistake in your calculations when you decided to invest. We should consider them and decide whether it still makes sense for you to keep your investments regardless of whether the stock price fluctuated up or down.
2. Setting sale goals
Another way to determine the appropriate time to sell the stock to range up and down selling goals. For example, you can determine if you can institute a 15% loss on investment before you start affecting your financial goals. This means that regardless of the circumstances, you will be selling your stocks if you lost 15% of its value.
This helps you to identify stop loss, and prevent getting mired in a situation where you may lose up to 50% or even your entire investment if the company runs into financial trouble or goes bust.
In the same vein, you can also set sell targets upward price fluctuations to make a profit. While this does not happen is likely to remain invested in the Next Amazon or apples of the world, which can go through several thousands of folds you get to reap your profits as soon as possible. You can also prevent the scenario where the change of stock prices to the initial price or less.
Also, opportunity to identify another Amazon or Apple is really slim.
3. A change in the fundamentals
Another way to determine the right time to sell when the fundamentals in the companies that invest in change. This can be due to a change in the balance sheet or even how much debt the company is taking.
Changes in management and acquisitions (mergers and acquisitions) and corporate actions can also change the fundamentals of the company.
Another thing to take note of that if the company used to pay most of its earnings in dividends but all of a sudden decide to re-invest profits in the company, it could mean that is changing the way it operates, which is a good reason to re-evaluate the investment in the company. Similarly, if the company decided to pay more of the profits, it could mean that he finds increasingly difficult for the company.
Read Also: 4 basic investment where all investors need to know
If the company is moving away from the reason you decided to invest in it, it should mean that you seriously reconsider your investment and sell it if it is not consistent with your investment objectives.
4. Rapid changes in the stock price
The rapid rise and decline in stock prices can also be a trigger for the sale of your investments. When the company’s share price rises too fast, it could be for several reasons – gained a large range of new business, market error the valuation of stocks or even a leak from inside knowledge but one reason is usually not you’re smarter than everyone.