An investment lesson given by every veteran investor or seasoned investment advisor is to invest for the long-term. Lesson number one of every stock market veteran offer is not to divest their investment during a temporary bullish phase and hold on for 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 is up, you might often be tempted to sell them, but smart investors, often guided by an experienced investment advisor, hold on to them stocks to see how much higher can their stocks go. When you have worked so hard to save and invest, why to sell-out so soon and lose possible future returns?
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 a question, what kind of investor you wish to be, a patient investor or an impatient investor. In short, don’t be greedy, easier said than done.
Short-term Capital Gains do not Create Wealth
While buying a share for Rs. 100/- and selling it at Rs. 120/- which sound profitable, how about holding the share for another 6-8 years and trading it at Rs. 1000/- While walking away from short-term gains can be difficult, if you want to sell stock within your portfolio, you should sell non-performers and reinvest your investment into shares which are winners.
Paper profits are pointless unless you sell your investment. Even if you sell your stock at a profit, and the price of your investment rises, you still are in the green, although it would have to be greener if you had held on to your investment instead of selling. You won’t lose money by selling your stock at a price higher than the amount you bought the stock, but you would feel even sweeter selling it at a much higher price. One of the most difficult decisions for any investor can be to decide when the right time is to sell and how long to hold on to their investment. An investment advisor can help you make such tough decisions and ensure you maximize your returns.
Signs you should sell your investment
Every stock has warning signs which indicate when it is the right time to sell. At the time of buying a stock, you often put a target price on the stock based upon the present scenario. This implies you might intend to sell the stock when it reaches the target price and moves on to another investment. But an exception to this can be that the stock has a further scope of growth, would you still want to sell the stock?
However, consulting an investment advisor can help you reassess if the stock still has growth potential and whether selling is the right move.
When a stock price rises, it becomes much more expensive to buy the stock. In such an event, you might be tempted to see the stock and invest in another stock having the potential for earning you handsome returns in the future.
But everything does not go as we plan. There can be times when you might be forced to sell the stock before it hits the target price. This can be due to adverse market conditions, which might force you to cash out early. It is vital to monitor your investment to ensure that the price of your stock is moving in the desired direction and does not nose-dive before you even realise it and wipe out your investment.
Golden Rules to sell your investment for Profit
The common attribute about every successful investor is, they buy low and sell high. Anyone investing for an extended period, say 10 years or more, can be confident that their investment will appreciate during this time.
An aggressive investor, often in consultation with their investment advisor, may sell profitable investments in two scenarios:
- Your investment is no longer attractive and does not have any further scope of increasing in value.
- You would seek to liquidate your investment and invest your money in some other investment or just are in need of liquid funds.
The Verdict
When investing in stocks, it is vital not to set blinded by on paper profits and ensure to cash out when the time is right. It can investment has done well, earned you good returns and no longer can offer further gains, it is time to sell your investment and move on to another stock with high growth potential and diversify your investment portfolio, or maybe even merely enjoy your wealth.
Savart is a SEBI-registered investment advisor, founded by Sankarsh Chanda. The purpose of this content is to educate, not to 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.