How to decide when to sell Shares?

by Amandeep Singh

in Investment Basics

Many investors are unable to sell a stock; either they ‘fall in love’ with an investment, or are unwilling to admit a failed investment and end up to book losses later when they are in dire need of money. Sell decisions should be made at the time of an investment.

As an intelligent investor, if you master the following key points, you will never lose the track of making BIG MONEY in the stock markets; be it BSE, NSE, NASDAQ or DOW JONES, for that matter.

1. Concentrate on selling stocks within your portfolio that are doing poorly, William O’Neill compares a portfolio to a garden, you need to pull your weeds and not your flowers in order to have a profitable ‘garden’.

2. Consider setting a limit on your losses. Many traders set that floor in the 6% – 8% range, depending on the volatility of the stock. They may not be happy about a small loss, but they make sure it doesn’t become a big loss.

3. Evaluate earnings trends, management changes, revenue growth and other basics to determine whether fundamentals are sound. Even if the stock price is sluggish or, for that matter, has hit new highs, you might want to hang on to the stock if fundamentals remain sound and growth prospects look good.

4. Consider selling small portions of your successful investment at previously decided appreciation targets. This will cover your losses from unsuccessful investments and will also ‘lock-in’ profits.

5. Admit mistakes quickly, and get out of investments that have fundamental problems. You will master this by doing your homework about the particular company before putting in your money.

6. Avoid becoming emotionally involved with your investments. Consider that all paper losses are real losses and all paper gains are real gains to provide you with the proper perspective.

7. Consult with your tax professionals to determine if the timing of a sale should be performed to maximize or minimize the tax effects. In general, make your trades based on the portfolio rules you have established; allow taxes to be determined separately.

There may be other market-driven reasons to sell that are just as valid as these are. Always consider the consequences (transaction costs, taxes, etc.) before making any decision to sell.

Article by wikiHow, a wiki building the world’s largest, highest quality how-to manual. Please edit this article and find author credits at the original wikiHow article on How to Decide When to Sell a Stock. Content on wikiHow can be shared under a Creative Commons License

Also Read:

Sold the Shares; Do I have to Pay Tax???

The Basics of Fundamental Analysis

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