The sell decision should always be dissociated from its price and seen in the light of the business characteristics of underlying companies. I believe that the sell decision should never be based on the stock price, let it be the current market price of the stock or the buying price of the investor. This would help her decide when to sell stocks. She should identify the signs of weakness in portfolio companies and update her views on the stocks accordingly. Therefore, the investor should actively monitor her portfolio. However, at the same time, the investor should avoid being stuck in laggards. If an investor is not able to control her emotions and hold on to stocks on this journey, she would always end up getting suboptimal returns in stock markets. This brings us to the cardinal rule of investing in stock markets: These investors do not want to miss the unrealized profits, however small such profits are. It highlights the need for the essential qualities of stock market investors: patience and emotional control.Īn investor should always remember that for any stock to be a hundred-bagger, it would pass through stages of two-bagger, ten-bagger and fifty-bagger. However, many other investors end up selling their stock investments early and miss out on the wealth creation. Many investors have seen their stocks turn five, ten or even hundred-baggers. We know that stock investments have the potential of increasing multiple of times in value, also known as Multibaggers. Therefore, the investor should avoid these approaches to taking the ‘sell decision’ based on profit criteria. These approaches invariably lead to one outcome: the investor gets out of her profitable stock investments early and fails to capitalize on the true wealth-building opportunities in stock markets. These approaches of deciding when to sell stocks lead the investor to think about booking profits the moment the stock price rises above her buying price. It will ensure that remaining stocks are at zero cost to the investor and she can hold them despite steep fall in stock prices in future. Whenever a stock investment turns into profits, then sell stocks equal to the initial investment.Whenever a stock investment turns into profit, keep a trailing stop-loss so that an investor does not forgo the profits already accrued.Sell when stock doubles or goes up X% from the buying price.Many of these approaches are based on the profit criteria. While interacting with many investors, I have come across many common approaches, which different investors follow to decide when to sell stocks in their portfolio. Opportunity cost means that instead of keeping money in poorly performing companies she could have invested her money in stocks of good performing companies and earned higher returns. Otherwise, the investor would find her limited capital stuck in suboptimal businesses, which exposes her to opportunity cost. Therefore, monitoring the stocks in the portfolio and taking the sell decision at the appropriate time becomes essential. Holding a stock for decades is essential however, the investor needs to make sure that she is holding only good stocks for these decades. “For the great majority of investors, however, who can – and should – invest with a multi-decade horizon, quotational declines are unimportant.” Those who seek short-term profits should look elsewhere.” “Since I know of no way to reliably predict market movements, I recommend that you purchase Berkshire shares only if you expect to hold them for at least five years. Legendary investor, Warren Buffett also advised the same to investors in his 2014 letter: The targeted time horizon should not be in months or years but in decades. I believe that an investor should invest in stocks with a long-term perspective. The current article aims to help the investor in making the sell decision about a stock. Therefore, deciding when to sell stocks becomes a trickier decision than buying them. At the same time, the investor should not keep on holding a stock even when it shows the signs of deteriorating business situation. The investor should not end up selling those stocks early, which go on to make millions for their shareholders. For making wealth in stock markets, knowing when to sell stocks is equally important as knowing when to buy stocks.
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