When investing in the stock market, you will have to make a number of decisions regarding your investments. Sometimes you will have to sell your stocks, sometimes you will have to buy some more stocks. Most times, you will just have to sit and wait for your stocks to rise in price. But the most critical decisions pertain to whether to hold on to a particular stock or to sell it. The art of investing in the stock market involves being savvy in making these decisions and making them quickly to respond to changes in stock prices. It also involves staying calm under pressure and not panicking when there is a fall in prices.
What you should aim for?
As an investor, your aim should always to be profit from your investment. This return on investment is called a capital gain since you have invested some capital in something and are gaining something from that investment. What does this entail for you? You need to ensure that you pick a stock that has a good chance of increasing in price over the course of time, whichever time period you have chosen, and buy it at as low a price as possible to ensure that you can make some money when you sell the share.
What should you take into consideration?
While selling a stock, the first and foremost thing that you need to check is whether the current price of the stock is more than the price that you paid to purchase it. This will ensure that you do not enter into a loss. You also need to take into account the transaction fee if any. Some brokerages charge you a fee for every transaction you make, irrespective of whether you have made a profit or not. Therefore, your sale price should be more than the sum of the purchase price and the transaction fee. Since the transaction fee number is not fixed and is instead a percentage of the total transaction amount, you will have to keep recalculating it for every transaction that you make. Once you can ensure that your sale price is higher, you can proceed with your sale.
What happens if I want to sell before the sale price is high enough to give a profit?
Sometimes there might be a reason you want to sell before the price of a stock is high enough to give you a profit. Reasons can range from requirement of emergency funds to changing the portfolio to include other stocks that could give a better return. This is fine, you can do this. But if it is a non-emergency scenario, you would do well to ensure that you make a profit when you sell. At the very least, you should sell it at a price that allows you to break even, the point at which you neither make a profit nor incur a loss.
When should I sell and when should I hold on to my investment?
Ideally, if you have invested in stocks that will definitely give you a good return in the future, then wait for it. If you have invested your disposable income into the stocks, then that would mean that you do not have emergency cash requirements. This will help you avoid having to sell your investments in a shorter turnaround time at a loss. So, by all means, hold on to your stock. When should you sell though? If the company you have invested in is not performing well, then it might be time to reevaluate the idea of holding onto that stock. Check the annual and quarterly reports of the company you have invested in. If the sales of the company have not increased or if the company is going into losses regularly or of the losses of the company keep increasing over time, then it might be time to close your investment. Again, check the debt-to-equity ratio of the company. The lower it is, the better it is for the company. That means the company can handle the debts it has. If the amount is higher, there is a good chance that the company may not be able to meet its obligations in a worst-case scenario. In such cases too, it would be a good idea to divest yourself of that stock. There might be situations in which the industry might not be faring well. For instance, some decades back manufacturing industries appeared extremely strong and that there would be no situation in which they would be affected. They had high share prices and they were in demand. But, at present, FMCG or fast moving consumer goods companies are leading the fray when it comes to sales and share prices. These companies typically completely integrate everything from the basic raw material supply to the final sales into their operations. This gives them better control over their operations and helps them improve their profit margins. While this does look good, there could be situations when an FMCG takes a hit because of certain news. During these times, you would be better served by following the news about them closely. Therefore, look at the current scenario before choosing which industry to put your investment into. If you feel that you have invested in the wrong industry, then feel free to take change that investment into a different industry. Visit Website like Bankbazaar.com which gives details on various indices like Nifty 100, nifty 200, Nifty Midcap 50, Nifty Bank etc.
Looking at the financial reports and the debt-to-equity ratio of a company are just two factors out of many more that will give you a good indication of where the company is going. But at the basic level, this should suffice for you to be able to decide what you want to do with your investment at that point in time. The key to deciding whether to hold on to your investment or to sell it remains in your hands. Everything depends on the time period within which you are expecting returns and the level of profit you are aiming for. Also, the performance of the company matters. If the company is not performing well, then the returns that you are expecting might go for a toss. Therefore, keep watching the company performance and then decide.
The contents of this post/blog does not constitute financial or other professional advice nor does it imply in any manner a principal-agent relationship, and is not a professional advice on a specific financial matter.