Your stock has risen by 20%, maybe even 50% or 100%. Should you run with the money? What if your stock goes down? Should you tide over the difficulties and hope for the best, or should you accept the loss and avoid the situation from getting worse?
All these questions have flashed in your mind, which is correct. You make money in the stock game, so it is important to make the right decision on when to sell the stock. In this story, we will explore three reasons to sell and three reasons to make it spend longer.
First, sell reluctantly
Some investment writers and TV experts say that you should sell in case of any trouble. They may use chart patterns, declining growth rates, or disappointing quarters as reasons for exiting.
Good ideas are hard to find, so stick to it until you have a good reason to sell. Just because the stock has fallen does not mean it is over. A panic action may be worse than just waiting for a short-term problem, such as a shortage of computer chips or blocked transportation routes due to a global pandemic.
On the contrary, the stock jump does not necessarily mean that it is time to place a sell order. A stock can continue to rise, far exceeding your initial target price. There is no cap on the stock. They (theoretically) have unlimited upside potential.
You spend time researching a company and perhaps even reading through its financial statements. Maybe you have used the company’s products and think they are the knees of bees. You take the risk and buy at the right price you want. Sales are very slow, so as to avoid making unnecessary investment decisions.
Stock sales may also trigger tax consequences. Consult a tax advisor before selling stocks, at least before you become familiar with capital gains tax rules.
3 good reasons to sell
Here are three signs you should consider selling stocks.
1. You need money
You save money for a reason, whether it’s setting up a precautionary fund, saving money for retirement, or that visionary mansion. If your portfolio has worked and you have enough funds to achieve the initial goals you set, then sell.
The reason is as follows: there is always the risk of the market falling back. This may delay or even prevent you from realizing all these hard-earned benefits.
2. The stock has changed
If Apple decides to sell Apple instead of selling countless iPhones every year, that would be a good reason to sell. When you first purchased Apple, you did not intend to buy food inventory. The company may have a workforce with untapped agricultural talents, but this is far less likely than their success in mobile phones and computers.
The same is true for major mergers and acquisitions. Once a company makes a major acquisition or merges with another company, you will have a different stock than before.
Most mergers and acquisitions are not as successful as promised, especially if the newly acquired company is engaged in a different business.
This is worrying when a profitable company starts to lose money, but it does not automatically become a reason to sell. The profits of cars and other companies that sell high-priced goods will fluctuate as the economy grows.
If coffee growers do not harvest well, Starbucks’ profits may fall. These are temporary problems. Don’t sell good stocks that have gone through tough times too quickly. If the company has problems selling its products, please find out the reason for this before deciding to sell.
3. The stock price fell short of expectations
If you think that the company will launch a hot new product when you buy stocks, but the product is useless, please sell it. If the company commits fraud, sell it.
The dividend cut is bad news for income investors. If you buy a company’s stock because it can pay dividends, but it is forced to cut the dividend or even stop paying it at all, this is dishonest to you. It’s time to enter that sell order.
It’s hard to admit that we were wrong. The situation gets worse when the price of our sold stocks rebounds or even goes higher. That will happen. But what you need to do is right, not wrong. Don’t reassess stocks that have not met expectations. Sell and move on.
3 not-so-good reasons to sell
Here are three reasons you might want to tell inside traders to shut up and hold the stock.
1. It feels good to profit from the stock market
This can be traced back to the difficulty of finding good ideas. Although we like booking profits and seeing some extra cash, what are you going to do next? Spending profits means you will have less capital to invest. Your next investment may not be fruitful. If your stock reaches your target price, that’s great! Maybe it can go up even more.
2. You have a hunch
Experienced investors are disciplined and will do their best to avoid being swayed by emotions. Human nature makes investment tricky. We hate losing money. When we feel that we have missed an opportunity, we also become neurotic.
Premonition is usually an impulse, and it is rarely seen that traders make money for a long time. Try to use rational judgment.
3. Online (or elsewhere) buzzing
There are smart people who provide great suggestions for free on the bulletin board and Reddit, but they are far more numerous than people who only know how to sound smart. Before the money is lost, it is usually impossible to distinguish the difference. Do you often see people saying “I don’t know” on the Internet?
Internet communities are vulnerable to what psychologists call “feedback loops.” At that time, enough people believed that others had joined the trend. Their reasoning goes like this, “If so many people believe (something), it must be true.” Then when it turns out that it is not the case, it becomes an exit race and the stock is kicked to the side of the road.
The unanimous investor is the winner
The list shared here is just the beginning. Over time, every investor will learn his own investment philosophy. Some investors want to buy shares of companies whose prices are lower than their value. Others focus on fast-growing companies. These two groups of people have different ideas when selling stocks.
As you continue to invest in the stock market, you will form your own buy and sell signals.One way to get sustained income is System investment, What people do when contributing to retirement accounts such as 401(k).
Once you do this, it’s important to be consistent. The market will go through some periods (sometimes a few years), and even the most valuable stocks will underperform. Other times, growth stocks will be in trouble.
If you keep changing your strategy, you may find yourself always on the wrong side. Professionals admit that sometimes the market is with you, and sometimes it is not. If you are patient and know how to minimize the risk, then the opportunity will be on your side.
Contributor Sam Levine holds the titles of Chartered Financial Analyst® and Chartered Market Technician® and has been writing articles on financial topics since 2003. He is an adjunct professor of finance at Wayne State University in Michigan.