What is the right time to sell a stock?

stock market

Investing in stock market is fairly simple if you follow certain golden rules like understanding the company fundamentals, having a diversified portfolio, among others. Along with knowing when to buy a stock, it is equally important to understand the right time to sell the stock in order to receive maximum returns on the investment. The stock market is volatile and, therefore, you should be patient and avoid taking impromptu decisions as you may end up losing a chunk of money.

Let’s take a look at some of the signs that are ideal to sell your stocks:

When the set target is achieved: It is important that as an investor, you have a fixed financial plan for your investments. After buying a stock, you should set a target for the amount of return that you are expecting from that particular stock investment. Once the stock garners the required target, it is wise to sell it off. In many cases, an investor gets emotionally attached to the stock and is not able to sell it. Such actions will affect the returns you plan to get from your investments.

When the company’s financial performance falls: The most important factor an investor should consider while investing in a stock is to take a look at the company fundamentals. At the end of the day, when you invest in a stock, you essentially invest in the company. Stronger the company fundamentals, better the results you can expect from your investment. The fundamentals like balance sheet, revenue, price to earnings (P/E) ratio, debt to equity (D/E) ratios, among others should be taken into consideration before investing in a stock. However, if these fundamentals start to fall and show no sign of recovery, it is time to sell the stock. If the company earnings are falling in comparison to its peers, it is better to sell the stock.

Drastic changes in the management of the company: Along with the company fundamentals, it is equally important to keep an eye on the management changes. A good management is the backbone of the company’s success and a drastic change in the leadership will lead to a negative impact on the value of the stock. Therefore, it is better to sell the stock, if the company is going through some major leadership changes.
When share price starts falling consistently: The stock market is volatile in nature, therefore, it is quite tricky to predict the rise and fall of a stock. Therefore, you should sell the stock which you have invested in if it has been falling consistently for a period of time should. Dramatic price changes in the stock due to uncertain conditions in the market is a good reason to sell your stock.

Better option with other stocks: At the end of the day, you invest in stocks in order to get good returns. Therefore, if you come across a better stock option that has the potential to perform and will give you sizeable returns, you can sell your stock and buy some other stock. However, make sure to conduct a thorough research before purchasing the stock.

When the company goes for a merger: It is important to follow the news related to the companies whose stock you own. If a company is planning to merge with another company, it is the best time to sell the stock. When merger talk starts making news, it is better to sell the stock and as there is a high chance the stock price will fall drastically. This could mean losing a chunk of your hard-earned money.
When the company cuts its dividend pay: If a company is slashing its dividend payments quite often, it suggests that it is expecting lower earnings and less growth in the future. This is another sign to sell the stock and avoid any loses.

Final thoughts

It must be noted that stock market investment requires a lot of hard work in order to reap best results. You should avoid making bets at the beginning of your investment as you will learn from your mistakes and eventually have a better understanding of the market. Also, as an investor it is important to learn about the different stock market cycles as it helps you with your stock investment decisions. Moreover, you should keep yourself updated about the stocks which are performing and also those stocks that have potential to perform well. At the end of the day, if you have a solid reason to buy a stock, you should also have one to sell it. You can refer to several blogs and websites like BankBazaar.com to get detailed analysis about stocks and Indices like Nifty 100, Nifty 50 etc.