Figuring out the best time to buy and sell stocks can be a bit tricky.
It can be challenging to decide when you should hold on to a stock and when to sell it in the stock market before you experience any losses. These are common questions that most investors face. This is especially true when they are not actively involved in the stock market as part of their profession.
In this article, we will share some helpful tips that new, or non-professional individual investors can use to make informed exchanges and decisions about when to sell stocks in the share market.
When to sell stocks?
Knowing when to sell stocks can be tough, especially during volatile market conditions when fluctuations make it seem like your stocks and wealth are at risk. However, there are certain scenarios where selling a stock becomes necessary and profitable in the long run. Here are some reasons to consider while buying and selling stocks:
- You have found a better option
If you discover a stock that aligns better with your financial goals, it might be the best time to buy and sell stocks, depending on your preferences and portfolio. New companies or shares often attract investors due to advancements or developments, and it might make sense for you to research and switch to a better-suited option. - A stock purchased mistakenly
It is natural for mistakes to happen, and not all investments turn out well. If you realise you have made a wrong choice and the stock does not perform as expected, it would be wise to sell it and look for a new investment. - The business outlook of the company changes
You may have invested in a company with a specific purpose, but if the company’s focus changes so that it no longer coincides with what you want as an investor, it is normal to sell your stock. If you can see that the new approach is not profitable or a right fit for you, it is best to pull out your investment. - Tax considerations
Tax should dictate your investment plans. However, by selling loss-making stocks, one can enjoy tax-loss harvesting benefits, thus reducing their tax bills. - Portfolio needs rebalancing
When a stock consistently outperforms, thereby affecting the overall balance of your portfolio, you can sell such stocks to achieve a fair stock distribution. This should only be done when necessary since selling a good or well-performing stock may result in a few stocks earning low profits and you, in turn, incurring losses. - Overvaluation or false projections
If there is an overestimation of the company or firm’s market value through unachievable enterprise valuations, either quit investing in the business or sell up. - Money withdrawal emergency
If you need to liquidate your investments for personal or financial reasons, it might be necessary to pause your long-term investment plans and withdraw your investments. This is completely understandable. Buying and selling stocks is not a priority in this scenario.
Also read: Stock vs ETF
When should you not sell a stock?
When it comes to investing in the stock market, there's always a certain level of risk involved. While it is important to be mindful of potential losses, certain reasons may not justify randomly buying and selling stocks immediately. It is crucial to make informed decisions when it comes to investing, especially considering the market volatility. Here are some reasons to consider before making any rash decisions:
- Stock valuation has decreased
If the stock valuation has decreased, buying and selling stocks should not be done hastily. Consider buying more stock rather than selling it. See it as an opportunity and keep the purchase intact to wait it out and see the stock go up. Market fluctuations are common, so don’t be hasty. - Stock valuation has increased
If the stock value is rising, it might not be the best time to sell your stock. Why let profits go away? Let the trajectory grow and take you further up in earnings before you hastily sell as soon as you make a slight profit. Buying also does not make sense, as you might end up purchasing a stock at a higher price. - Economic rumours and forecasts
The market is unpredictable, and so is the economy. Do not trust sources that aren’t trustworthy. Economic slowdowns and stock market crashes are predicted very often. Every time you hear such forecasts, take your time and assess the situation before buying and selling stocks in a rush. - Short-term predictions and concerns
Experts always provide predictions and suggestions based on rumours to individual investors. Do not believe a buying and selling stocks-related suggestion that cannot be backed with facts and actual news because the market is unpredictable, and even experts can't claim that they are always accurate or should be trusted at all times.
Also read: Demat account
Bottom line
When to sell stocks is a tough call. Try not to get influenced by experts or projections. While they may give you informed advice, you can never be too sure about the market. Trust your instincts regarding the company’s current performance and match its growth with its projections, valuation fluctuations, and competitive positioning to take a call. Buying and selling stocks at the right moment is a decision that results in the acceleration of your profits in the long term. Hence, it is best to make an informed decision.
