Before you make that call
by: JOHN DOE
on: DECEMBER 2, 2022
in: BLOG
Warren Buffet once said, “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.” While this might seem like an extreme recommendation, many financial experts believe that the goal for stock investments should be to hold them for as
long as possible.
The possibility of making money from stocks is hinged on two factors: buying at the right time and selling at the right time. If you are trying to make profit, it is important to execute both decisions correctly.
Why You Shouldn’t Sell Your Stocks just yet
Market downturns are great buying opportunities
On days when the stock market takes a beating, investors are encouraged to focus on what they could be buying. A market plunge creates room for stocks to become cheaper.
The market is resilient
The market may fluctuate up and down, but in the long term it will always move up.
When to sell
When deciding to sell your stock, it is important to weigh the decision within two lenses: the intrinsic and extrinsic reasons. Intrinsic reasons are reasons that are related to the stock itself and/or the markets while the extrinsic reasons are related to the investor’s finances or lifestyle.
Intrinsic Reasons
When a stock reaches your price target
Once a stock reaches a level that an investor had projected as their point to sell, then it is advisable to consider selling part or all their position.
When a stock trades at a technical inflection point
When a stock trades near and breaks below a multiyear low, it often means there are additional losses in the horizon. In this case, it is advisable to sell the stock as soon as the technical level is breached.
When a company’s fundamentals deteriorate
It is possible for a stock’s fundamentals to deteriorate for any number of reasons like slow earnings or revenue growth, increased competition or reduction in valuation. In such cases because it is difficult for the investor to determine whether the deterioration is temporary or permanent, it is advisable to sell and exit the position first before re-evaluation.
Extrinsic Reasons to Sell
Financial reasons
One justifiable reason for an investor to sell their stocks is if they need cash for a competing investment, such as real estate.
Lifestyle reasons
Lifestyle changes also provide good reasons to sell a stock. A younger investor might sell part of or all their portfolio to put a down payment on a house, while parent investors may also sell stocks to finance their children’s education.
Tip
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