When should I sell my Stocks? There are endless reddit post...
When should I sell my Stocks?
There are endless reddit post about which stock to buy today but very little is being said about selling stocks. It’s just not something that gets discussed very often so in this video I wanted to share some thoughts.
As always this isn’t financial advice and for educational purposes only.
A lot of people are under the impression that stocks should be held forever and that selling is always a mistake. After all even Warren Buffett is saying that his "favorite holding time is forever".
This is of course true but only if the stock you own still offers strong fundamentals and the opportunity for appreciation beyond your hurdle rate. Unfortunately the world isn’t perfect and as we know even Buffett’s Berkshire Hathaway is selling stocks
So when is it ok to sell a stock? Is there such a moment?
Pfil Fisher discusses this topic in his famous book Common Stocks & Common Profits. I highly recommend that you read it when you have a chance as it is one of the best books on Investing out there. I will add a link in the comments below.
So when can or should I sell my stock”?
The biggest reason would be if you made a mistake buying the stock in the first place. Nobody wants to admit that they made a mistake but mistakes happen. Maybe we bought a stock based on a Tip or didn’t research enough.
Of course its better to avoid buying it in the first place but if you have a “mistake” in your portfolio then correct it and sell the stock.
If the position is at a loss I would also not wait for it to breakeven. Just correct the small mistake before it turns into an even bigger one.
Of course you have to be willing to accept that you made a mistake.
Another reason to sell a stock is when the fundamentals of a company change
Let’s say it how it is. The world i fluid and things can change. Lets say you bought a company 5 years ago when they had strong products a strong management etc
But now after a few years you notice things are deteriorating. The company isn’t growing as much, Returns on Capital are sinking. Management is making a lot of mistakes. Key people are leaving the company
These things happen and as we know many stocks that were among the best 30-40 years ago are much smaller today. Some might not even be around anymore.
It’s just the way it is. So if you notice that your Company is not doing as well as before then it is perfectly fine to sell the stock.
You don’t owe anything to anybody and your goal should be to make the most profits possible ( in a safe way ).
Little side note: Even the ultimate passive investment tool the SP500 index is constantly removing and adding companies to the index. If you look at the index components from 30 years ago you will notice that many of the companies aren’t in today’s index. The same thinking applies here. Some companies started to deteriorate and some new companies did better. So the index removed the bad ones and added new better companies. The same thinking should apply for your own portfolio.
Keep an eye on your basket and watch it closely.
Another good reason to sell stocks is a tough one. Its ok to sell stocks if you find a better opportunity to invest your money. This is of course very hard but lets look at a sample.
Lets say you are fully invested but as always you keep an eye on the markets and potential investments. You come across this Company that checks all your requirements. Strong growth, huge margin of safety and overlooked by the market. It’s hiding in plain sight and this is an opportunity to make outsize returns for you .
You are fully invested already so what do you have to do. Yes you need to sell something else. You can trim an entire position or also just trim a bit of all to make room. This is up to you. But its perfectly fine to sell if you need the capital for a better investment.
The problem is this though: You have to be very sure that this new Company you found really represents a better opportunity . Thats where Research comes in.
I hope this post helped you with your decisions on when to sell Stocks. It is never easy but sometimes things have to get done.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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iceswimmer : I think maybe it’s because many ppl holding the stocks for a long term, and those who try to earn with trading itself care about selling, coz they will be focusing on the technical respect.
Savage1 : That’s Something you need to learn charts aNd make a plan and stick to how much you want to make (%) and what you are willing to lose , the marKet caP, P\E etc Also depends if you are swing, day, long term trading . Hard for anyone to tell you when To sell your stock , it’s your money