Letting go is key behind a happy and content life. While this seems like a vague reference to a stock market trader, it gives a very important financial lesson that all investment experts swear by.
Buying a stock and holding it over a longer period of time is considered one of the best ways of making money in the stock market. But what should one do if there is a dip in a particular stock's price and there are numerous factors that present a need to sell your stocks at the right time?
People generally choose to sell a stock under two circumstances. First is when the stock registers a high quicker than you expected; the second is when the stock performs badly and you are unsure if it would ever improve or would rather deteriorate further.
While both situations are opposite in nature, the dilemma they put you in is the same: Should you sell the stock or should you hold it for a little longer?
Here are top situations that confirm you should sell the stock as opposed to holding it for long:
Financial instability in the company
One of the leading reasons that can compel you to sell a stock is the financial stability of a company. If the company has huge debts and reduced sales, consider it as an immediate sign to move out. The longer you stay invested such a stock, the costlier it could get for you. Yes, there are examples of companies and stocks that improved over a period of slump. Hence, you need to study and analyze various factors before making this decision.
Sudden organizational changes and performance concerns
Sudden changes in the company’s management that it impossible to gauge its future performance could be a reason to sell the stock. A change in the structure and leadership can have a significant impact on the long-term performance of the stock. New leadership could either lend the company a new direction and improve its performance, or worse, deteriorate it. If the leadership was what kept you invested, you might want to reconsider your investment. Selling the stock becomes an inevitable choice in such a condition.
Getting better returns elsewhere
The markets always investors new opportunities to earn better returns. This could either be from the stocks they are already invested in or from other companies and assets. In such a situation, selling your current stocks and investing elsewhere can be a good option.
Increase in the value of the stock
Stock prices are subject to the events and outcomes happening in the real world. This includes corporate, social, political, and even industry or domain-based happenings. , stock prices rise or fall in anticipation of such announcements. However, if the company’s valuation is justified by a growth in profit as opposed to a news-based event, you can consider holding on. However, if the case is the opposite, then selling the stock could be a wiser decision.
Revaluating and rebalancing your portfolio on a periodic basis is an important task that every investor must undertake. This involves making changes to your portfolio based on the current opportunities in the market. This could mean that you will have to sell some stocks you already own to buy more profitable stocks.
If the markets can be dynamic, then why shouldn’t your portfolio be the same.