Updated: Mar 30, 2022
It is so difficult to decide when to sell your stocks. If you are not planning on holding them forever sell your stocks at the right time and with the right reasons. Emotions have a way of getting the best of us and sometimes we make impulsive decisions that is not necessarily the correct decision.
Remember that you will not always get your exit right but always believe that you did your homework and know the reasons why you did it and don’t look back. Also take note where you went wrong if you were uncertain about your selling point and take notes to prevent making the same mistake again.
This is guidelines and so many things play a role in the market please do your own research.
Why did I buy the stock?
In many circumstances, the choice to sell a stock should be based on why you purchased it in the first place. You may want to keep a stock if you bought it for dividend payments or high-growth forecasts.
You want to sell if you bought it for short term gain or if it is not something you feel like keeping in your portfolio, either personal preference or due to market change.
Connect your stocks to a identified trigger, such as a new product or a restructure of the company, supply and demand or new competitor in the sector. Investors will sell, if the market recognises this trigger.
It's difficult to let go of winning stocks. Rather take the profit and buy again when at fair value. This I would say is especially important if you bought too high and was hoping for upside. Overvalued stocks will readjust when it goes tough in the market and you will pay the price.
This is also the type of examination that investors should perform before purchasing a stock, but rarely do. It is highly advised to learn the basic financial ratios, like P/E. There will be high valued stocks that will still have upside, therefore it is very important to be familiar with the companies growth potential and returns.
Company not performing well
When prices fall it is also a fantastic time to invest.
Exiting may be a sensible decision, if there is a decline in the business financial performance. Some investors say “If a stock drops 20% after I acquire it, I've clearly made a mistake. I sell and go on to the next project." This can be done if you have the funds to do so. If you take that loss and invest in a option where you expect growth you can make-up that loss. But again, before taking this drastic step investigate the companies future prospects.
Not paying or cutting dividends.
Dividends are important to both shareholders and companies, so pay attention when a company reduces its dividend.
Due to the pandemic, many companies reduced or stopped paying dividends in early 2020. However, once the economy improves, most of those payments may be reinstated. A dividend drop can also be a sign of broader concerns, such as too much debt or diminishing revenues, in which case you should sell.
Note that small start-up companies will not pay dividend because they are reinvesting their cash into the company to stimulate growth.
Did you know that Facebook, Google, Amazon and Berkshire Hathaway do not pay dividends? They reinvest... I would prefer them paying dividends if you look at their returns but that is a decision that's in their hands unfortunately :-(.
Happy Selling !