An investment lesson given by every veteran investor is to focus on long-term investing. This means not divesting during a temporary bullish phase and holding on for potentially higher returns in the future. This leads to the question: when is the right time to sell your investment and take your profits?
When the price of your stocks rises, you might often be tempted to sell, but smart investors hold on to see how much higher their stocks can go. When you’ve worked so hard to save and invest, why sell out so soon and lose the possible future returns that long-term investing could provide?
According to a famous quote by investment guru Warren Buffet, “the stock market is a device for transferring money from the impatient to the patient.” So, let us ask you: what kind of investor do you wish to be? A patient investor or an impatient one? In short, don’t be greedy—easier said than done!
Short-Term Gains vs. Long-Term Wealth
While buying a share for Rs. 100/- and selling it at Rs. 120/- sounds profitable, how about holding the share for another 6-8 years and trading it at Rs. 1000/-? Walking away from short-term gains can be difficult, but long-term investing is more likely to create wealth.
If you need to sell stocks within your portfolio, consider selling non-performers and reinvesting in shares that are likely winners over the long term.
Paper profits are pointless unless you sell, but even if you do sell at a profit, remember that long-term investing often yields better returns. You might make a profit by selling early, but it can feel even sweeter to hold out for a much higher price.
One of the hardest decisions for any investor is knowing the right time to sell and how long to hold on.
Signs You Should Sell Your Investment
Every stock has indicators that hint when it might be the right time to sell. At the time of buying a stock, you may set a target price based on the current scenario, intending to sell once that target is reached. But in long-term investing, if a stock has more potential for growth, it might be wise to hold onto it.
When a stock price rises, it becomes more expensive to buy, and you might be tempted to sell and invest in a different stock with higher growth potential. But plans don’t always go as expected.
Adverse market conditions may force you to sell early, underscoring the importance of regularly monitoring your investments. Long-term investing requires vigilance to ensure that your stocks don’t take a nosedive unexpectedly.
Golden Rules for Selling Investments Profitably
A key attribute of every successful investor is buying low and selling high. Anyone investing for an extended period, say 10 years or more, can generally feel confident that their investments will appreciate over this period—one of the core principles of long-term investing.
An aggressive investor might sell profitable investments in only two situations:
- When the investment no longer has the potential to increase in value.
- When they need liquid funds or want to reinvest in a better opportunity.
The Verdict
With long-term investing in stocks, don’t get blinded by paper profits—ensure you cash out when the time is right. If an investment has done well, earned you good returns, and no longer has potential for gains, it may be time to sell and shift to a stock with better growth prospects.
By following these principles, you can build a diversified portfolio and potentially enjoy the rewards of your long-term investing strategy.
Savart is a SEBI-registered investment advisor. The purpose of this content is to educate, not advise or recommend any particular security. Please remember that investments are subject to market risks. Please conduct thorough due diligence or seek professional guidance before making any investment. Do not believe in any speculations.