Various resources out there only help investors with different types of stocks they can buy but very few resources provide information on when to sell stocks. According to Nikit Shingari, one of the problems that most investors have is knowing exactly when stocks can be sold. To be a profitable investor in stocks, being able to know when to buy and sell stocks is very important. With the various platforms and brokers on the internet and with the help of the stock exchange it becomes very easy for even new investors to buy stocks but more difficult to sell them.
Here are some tips to consider before selling your stocks
The Need To Rebalance Investment Portfolio
Some advisors in most cases do advise investors to set asset allocation especially when the investment portfolio is new. This is to help investors that want to maintain proper asset allocation and to prevent them from focusing too much on one specific stock. Asset allocation for investors helps them know the portion of their portfolio that will be invested in different assets like stocks or bonds. If a stock in your portfolio is performing very well than others it takes a bigger percentage of that portfolio as time goes on. There might be a need for you to sell part of the stock to balance the portfolio and to maintain asset allocation. Please note that rebalancing should only be considered when there is a need for it.
Don’t be too relaxed if you have a stock that is performing very well in the stock market. There will be a need to always be on the lookout for some things or factors which can bring down the price of a stock. Through financial ratios, you can have ideas or hints if the stock price will reduce or increase. Fundamental analysis is another means through which you can measure the strength and weakness of the company that issued a particular stock by looking closely at its financial statement. Professional investors and traders always make use of financial ratios just to have an overall idea of a company’s performance at a particular time or period. Having access to the financial statements of a company will help you have a better understanding of the stock value. When all the signs you get from the dividend payout ratios, earnings per share ratios, price-to-earnings ratio, and debt to equity ratio is indicating a red flag you can sell such stock of the company. Especially when the price-to-earnings ratio is far above the average of its competitors.
Unimaginable High Valuation
The stock price of a company is determined by some factors. There are times that the stock price of a certain company or business is beyond the expected market level. This makes the stock price reach an unimaginable high valuation and market level that cannot be sustained for a very long period. In a situation like this, you will have to sell the shares of such a company. The price-to-earnings ratio of a company can be used to calculate the stocks in the market. The price-to-earnings ratio of a stock can be calculated when you divide its stock price by its earnings. A high price-to-earnings ratio simply means the valuation is high. Looking back at history some companies experienced the same situation and with their good performance over the years they are yet to reach their speculated highs.
Stock trade is affected by market sentiments. Negative sentiment may be from the news that can cause the stock market to trend downward. When the market is trending downward due to negative sentiments, hardly will the value of any stock improve. You should consider selling your stock if the downtrend is a result of negative market psychology or have short-term investments.
Once It Reaches Your Expected Price Target or Range
Nikit Shingari, says as an investor or stock trader, it will be a wise decision to have a price target or range because it will save you from making decisions based on emotion. With your price target in place, it becomes easy to maintain profit because you sell once you reach the expected price target. In case you are the very sure stock will not go beyond a certain range due to some factors you should set your selling price in advance and sell the stock once it reaches the expected range.
Though as an investor it is not easy to set a price target so in most cases you see investors creating a price range within which they can sell their stock. With a price target or range, you can act wisely and will not have to trade stock with your motions. This can be very rewarding in your investment or trading journey because you will not have to sell stocks early due to panic about what is happening in the market.
A stock market crash can happen anytime which is why as an investor or stock trader you need to know when to sell a stock or buy a stock. When the market crashes, long-term investors are not easily affected because it can bounce back within a short period. With various market strategies, you can navigate through the crisis and come out strong. With the tips listed above, you should be able to know when to sell stocks, says Nikit Shingari.