When to sell is one of the most discussed topics in the stock market community. Ideally, you can sell every single investment opportunity at the peak and squeeze the last bit of return before selling. In reality, things happen very differently. Let's talk about it.
One very obvious reason to sell your investment is if you need your money. If you need t your money and there is no other way you can come up with cash from another source, you have to sell. Ideally, you have 't invested the money you need to live your day to day life, and you are not forced to sell during a downturn, but if you need the money, you have to sell. That's it!
You may decide to sell some winning and losing stocks strategically and at the same time. If you have a losing stock that there is no reasonable path for the company to recover anytime soon, you can sell the stock and use the losses you incur to balance of the winning of another stock and save yourself a few dollars in capital gain tax. This is commonly known as tax harvesting, and its a perfect reason to sell.
If none of the above two reasons apply, to decide when to sell, you'd need to document why you bought it in the first place. Deciding when to sell is impossible in a vacuum. What did you buy something in the first place determines when is the right time to sell.
For example, every year, I pick one single stock for my nephews, who are 4 and 1 (at the time of writing this section). I invest in companies that are shaping the future of humanity in the next two decades, on until my nephews are 18 and can take over their investment account. Knowing that, if a company I have invested in fall 10%, I'd never sell. Falling 10% and shaping the future of humanity in 2 decades do not contradict each other.
Similarly, if you invest in a stock, to make income in the next 12 months, if it stops paying dividends, or if it takes on a lot of debt, your original reasons for investing in the stock is in jeopardy. It's time to consider selling.
This video explains the topic a little bit more if you have a few minutes to watch it:
Action: Think of a stock you are wondering whether you should sell. Got it? Now, go back to the reasons you invested in that company. Document 2 to 3 reasons you had in mind when you picked it up. Are those reasons still applicable?
For more advanced users, go back to all of your investments one by one. Document the reasons you have invested in them in the past, and store the reasons in a safe place. Whenever you are considering selling any of those shares, go back to the reasons. This exercise enables you to avoid panic-reacting to the news and markets up/downs.
Up next: What other questions do you have? Let us know by emailing us at firstname.lastname@example.org, or ping us using the live chatbox on the bottom-right corner of the screen.
Until then, visit the list of "stocks for beginners" on Stock Card. Click on the image below to get the list: