While the heart of investing is in buying the best stocks at the cheapest possible price, selling is equally important if you need to realize your gains. New investors are often plagued by emotion and greed when trying to sell their stocks, ending up suffering losses instead.
Unlike at the time of buying stocks – when help is at disposal in the form of stockbrokers, investor notes and price target predictions – the selling part is often left to our own instincts and analysis. The art of selling can be, however, mastered by rigidly following a few rules. Let’s check them out.
Forget the peak
All investors – trust us – every one of them wants to sell their stocks at the peak price. But none of them – trust us once again – none can time the markets accurately. In other words, you need to focus on making gains, rather than maximizing gains.
The key to achieving this is by formulating your own selling price range at the time of buying the stock. And as a thumb rule, never raise this price range. Sell when the stock hits this price range, and then pursue other stocks where you see an upside. This is precisely how other successful investors have become rich.
Discard bad stocks ASAP
All investors make mistakes while choosing stocks. It could be because of a flawed analysis, change in market trends, or unprecedented events that may have deviated the narrative of the company. But the moment you realize there is little upside possible based on its fundamentals or other geopolitical factors, it is safer to discard the stock, even if it means suffering a loss.
It follows the same principle as discarding the rotten apple from a box of fresh apples. The earlier you discard them, the better.
Look out for certain key phrases
Be cautious when the company uses certain key phrases. For example, when the company is using “aggressive turnaround strategies” and “cost-cutting initiatives” to “streamline operations,” it means the company is struggling to maintain growth.
While it does not mean you need to exit the stocks, it means that you have your feet ready on the gas pedal. Massive job cuts may boost stocks in the short term, but it gives a not-so-subtle hint at growth declines. If you are holding the stock at a profit at this moment, better not wait for it to hit the target price.
Declining market share
Investors often resort to selling based on declining annual revenues. But a bigger red signal is declining market share, which indicates that rival companies are offering better services at a better price. If you see the market share of the company’s products or services dipping, it would be safe to get rid of it.
It goes without saying that this is not the perfect mantra for investing, that is, if there is one. But if you want to stay out of big risks and invest your money with a focus on value, these tips would certainly help you time your stock sale better.