There are a lot of considerations involved in the selling of equity stocks. Holding on to the stocks for too long or selling the stocks too soon are both realities that can affect your overall profit on the stocks. Deciding that you need to sell your stocks is never an easy decision and developing a penchant for identifying the right time to sell takes practice. From the outset, the two things to ensure are:
- Never let emotions rule your decision to sell
- Do not believe that your investments are invincible
The economic conditions of the stock market as well as forecasts from companies keep changing with time. So before you panic and hang out the “sale” banners, here are the five signs that should warn you to re-evaluate your stock portfolio.
Sign 1: Keep an eye on the companies you’ve invested in
Keep a wary eye on the companies you are investing in as well as the investment related news. For instance, if a company suddenly stops introducing new services and products as per their lifecycles -
- Its growth is likely to get stalled
- Issues might arise in cash management
- There is likeliness that there would be a rise in inventory as compared to the sales
- The company may witness a decline in its revenue
Either of these factors, or their cumulative sum, could signify much deeper problems for your investment. Further, if there is a sudden, unanticipated change in management, it might bring along with it a host of adverse factors, something you ought to keep a tab on.
Sign 2: Tracking the stocks and the competitors
The most popular of stocks generally keep in sync with the market. If you suddenly notice that your stocks, which have till now kept up with the rise and fall of the market, start lagging behind, something could be wrong. Also look at what the company’s competitors are up to. If there are some other companies that are gaining shares in the market and are coming up with more innovative products or services, time may have come for you to sell your stocks before the prices suffer a further decline.
Sign 3: The target price
When purchasing stock, investors have in mind a target price that they wish to reach before they sell. This target price may change over time as well, depending on the prevailing economic conditions. A smart move is to set a price alert for your target price, do not waste your time trying to time the market, and sell when the stock is trading at a price higher than the target.
Sign 4: Overreactions
Pay keen attention to earning announcements to gauge whether an increase in stock is based on a shift in strategy and a permanent increase in value or it is due to short term expectations. One of the signs of a short term increase is a rise in prices that surpasses expectations. If you suspect that the rise in the stocks is too high based on the fundamentals, you should take this opportunity to sell before reality has time to set in.
Sign 5: Rebalancing
Your investment portfolio has the tendency to get out of balance over time. Examining your portfolio is a task that you should undertake on a periodic basis. If the allocation strategy that you intended to follow is out of sorts, start rebalancing your accounts. It could be done in simple ways like taking the profits from some stocks and reinvesting them in your smaller holdings.
Determining the right time to sell your stocks may not be the hardest thing to do, but it is still a decision that requires due consideration and thought on your part. Take your time, do your research, and over time, it will get easier.