When is the right time to sell your shares? How do you decide to sell your shares simple and do it confidently?
Shares Investing and Trading
Shares investing and trading potentially brings lucrative returns and done right is a positive source of wealth-building. However, there will be times when the right move to make is to sell some of the shares you are holding in your portfolio. It is easy for the media and others to affect us, and cause us to behave emotionally. Thus before you invest, you will always want to have your Personal Investment Plan in place.
When to Sell?
We all make mistakes, even professional investors who have invested for decades. The key thing is to realize when you have made a mistake and to cut losses as soon as possible. The bigger your lost (lost incurred %), the harder it is for another investment gains to cover your loss (returns to breakeven %).
Possible mistakes/drivers to reduce losses
- Investing on rumors/fake news/hot tips which fail to materialize.
- Analytical mistake with data/assumptions used.
- Unexpected material changes affecting the company’s profitability, growth, and shareholder returns.
A key investor behavior that prevents many from beating the street is the tendency to quickly sell our winning stocks but drag our feet on losing stocks. Above, we looked at reducing losses. But how about when should you take profits?
“The investor’s chief problem – and even his worst enemy – is likely to be himself.” ~Benjamin Graham
Possible times to take profit
- Rapid price appreciation especially if driven by speculation or manipulation.
- A healthy market uptrend with your stock gaining 20-25%.
- When a single stock or sector becomes very overweighted due to gains.
If you find a better place with much better returns to redeploy your funds (after taking into account extra fees/costs), you may want to make the switch.
Changes to your portfolio can also be motivated by reducing risk by allocating your funds across markets and sectors.
Another possible reason to redeploy funds is to consolidate your holdings. It is crazy as an individual investor to hold and monitor 30-40 different individual shares. If well-planned, six to ten individual shares should give you sufficient diversification. This allow you to focon the companies in your portfolio.
Lastly, sometime unexpected events or circumstances occur and you may need to liquidate part of your shareholdings.