In THIS post, I'm going to cover one VERY specific question I received recently; "When to sell stocks?"
That being said, if you are interested in learning the stock market, then learning when to sell at the perfect time to make a profit on your investment is CRUCIAL. It's also super important to learn how to identify the best times & reasons to sell your stocks.
When Should You Sell Your Stocks?
if you find it easier to identify the right times to purchase stocks but struggle when it comes to finding the right opportunities to sell your shares, then pay attention!
As a bonus, you will also learn when to sell your stocks to avoid making huge losses.
When there is convincing evidence that they are overvalued:
One of the best times to sell your stocks is when you have reason to believe that they are overvalued.
For example, if the price of one of your stocks has increased rapidly and has reached an unsustainable high, it may be a wise idea to sell the shares which you hold.
This is especially true if respected financial analysts believe that your stock is overpriced.
One way to know if a stock is overpriced is if its share price is significantly higher than its rivals. It's also common for stocks to become overpriced due to mass speculation.
Although it may be tempting to hold onto a stock that has drastically increased in price, it's important to remember that most speculators actually end up losing money.
Whereas, if you sell your stocks when they are overvalued, you are guaranteed to make a generous profit.
When a stock has received too much attention from the media:
Often stocks become overpriced when they receive too much media attention and too many individuals rush to purchase shares, which causes a stock's price to soar, in a short period of time.
A great example of this is the attention GME (GameStop) received in early 2021!
A LOT of people lost a LOT of money, because - let's be honest - they were buying into a meme, and didn't really know what they were getting into. Some people and funds made MILLIONS from this stock, others..not so much!
That being said, it's wise to make your own investment decisions and proactively seek out stocks that have solid financial figures.
If you notice that a particular company is starting to cut costs:
While all businesses look to cut costs in order to increase their bottom line if you notice that a specific company is laying off a significant number of employees, it may be time to sell your shares.
If a company is thriving, it will increase its workforce and it's likely that a company that is downsizing is about to experience challenging times.
If you regret your decision to purchase a specific stock:
If you find out new information about a stock that causes you to regret your decision, it's well worth selling off your shares before they decline in value.
There is no reason to hang on to shares in a company that is unlikely to expand or to retain its market share in the future.
Remember, that even if your shares have already decreased in value, there's no point holding onto shares that are likely to continue decreasing in value. It's better to take a 10% loss than to lose 60% of your investment.
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When you hit your predefined target goal for each stock:
Depending on your tolerance for risk, you may want to set a target goal for each stock. As an example, you may decide that you're happy selling a stock when it reaches a certain price.
On the other hand, if you're not particularly risk-averse, there may not be a need to set a target goal for the stocks which you hold.
When your dividend payments are reduced:
If you purchase blue-chip stocks in order to receive passive income, in the form of regular dividend payments, you may want to consider selling your stocks if your dividend payments are slashed.
Keep in mind, companies aren't required to pay dividends to their investors and can choose to decrease their dividend payments at any time. Some companies even decrease their dividend payments when they're experiencing growth and making competitive profits.
While decreasing dividends isn't always linked to the current financial health of a company, if you're looking to bring in a steady stream of passive income that you can quickly reinvest, you may want to consider selling your stocks.
Your stocks have suddenly become low float stocks:
If it's important to you that you'll be able to easily find buyers for your shares in the future, consider selling your stocks if they suddenly have a lower float. As low float stocks can be notoriously hard to sell and are known for their volatility.
If you're unsure of what a low float stock is, low float stocks have limited public shares available on the open market and have more shares classed as restricted stock.
Restricted stock can include shares that are owned by key investors, employees, owners, and members of a stock's board of directors.
If you hold low float stock, it may decrease in value in a single day of trading if the owners of its restricted stock make quick decisions to sell off their stock with key information that you don't have access to.
Consider selling off a portion of a stock:
If there is a particular stock that you're uncertain about. You may want to sell a portion of your holding in order to make a profit and to hold on to the rest of your shares.
This is a great idea if you want to minimize your risk while still being able to hold on to potentially lucrative stocks.
Avoid panic selling:
One of the most common mistakes which new investors make is selling their stocks when the value of their stocks takes a small dip. As an investor, you have to remember that all stock prices rise and decline over time. Even stocks that boast upward trends still experience small, temporary dips in price.
If you notice that one of your stocks has decreased in price ask yourself whether the dip is likely to be temporary or if its company is in long-term trouble.
If the stock in question has a great CEO and board of directors and a solid business strategy for the future, it's worth keeping on to your shares.
However, as mentioned above if you have doubts about the future success of a business, you may be best off selling your shares.
Reasons To Sell A Good Stock
Stocks can be a great investment.
They offer the potential to make a profit on your money, and you get to keep it all!
But there are some times when you might want to sell stocks that have been performing well for you.
It is important not just because of the risk involved with investments, but also because of how much time and effort goes into making them work in the first place.
Here I'll list my top 3 reasons why it might be worth selling a good stock that has gone up in value over time.
#1 - The stock you own has recently gone down in value. This would be a goodt time to sell it and buy into another one that is going up! You don't want your profits to end up on the wrong side of the equation, after all.
#2 - Buying more shares could lead to an investment too big for your portfolio size. If this is true, selling some stocks now will help keep things balanced. Plus there's no need to have so many eggs in one basket if they're not performing well anymore - diversifying can go a long way when it comes to trying new investments with lower risk levels than before!
#3 - Selling a good stock now may be the smartest decision you can make. You don't want to get stuck with an investment that's losing money!
e.g., If my initial portfolio consisted of 100 shares priced at $30/share (and I'm not content with any of the current investments), then if they drop below $25/share I will most definitely want to sell.
When Not To Sell A Stock
When you have a stock that is doing well and you are considering selling it, the next decision to make is when to sell it.
When you sell too early, you may miss out on more upside potential.
When you don't sell soon enough, your downside risk increases because of an ongoing trend or event that could negatively impact the stock price.
The key is determining when this risk becomes intolerable for your portfolio and then making a trade accordingly. Below I'll share my top reasons to NOT sell a stock
#1 - When the stock moves against you and has a strong price movement that makes it difficult to get back into it - this is an example of when to sell. If your downside risk becomes too great, then selling can be wise before the situation worsens.
#2 - When the company or sector experiences some bad news - if there are negative earnings reports, management shakeups or other factors that make owning shares riskier than they already were, selling may be advisable in order to avoid further losses. The key question here is whether these events create enough uncertainty about future share prices for them to become uninvestable for you personally given their higher volatility or increased likelihood of loss relative to upside potential; again, timing will vary depending on how much time.
#3 - When the company or sector experiences some bad news - if there are negative earnings reports, management shakeups or other factors that make owning shares riskier than they already were, selling may be advisable in order to avoid further losses. The key question here is whether these events create enough uncertainty about future share prices for them to become uninvestable for you personally given their higher volatility or increased likelihood of loss relative to upside potential; again, timing will vary depending on how much time.
If you're confident in your abilities to be able to spot a bargain investment but struggle to identify the right times to sell your stocks, you now have the information which you need to sell your stocks at the opportune time.
In order to increase your profits and to minimize your chances of making significant losses.
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