When to sell your favourite stocks?

One of the most critical factors in trading/investing is knowing when to sell your stocks. In trading, people know when to buy stocks but don’t know when to sell them and hence they suffer losses. If a trader enters a trade at the best price, but if traders don’t know when to exit the trade at a suitable time, then they will not get anything back.

The main reasons traders can’t sell their stocks at the right time are greed and fear. If the trade goes well, there will be a greedy emotion to book more profit. Sometimes, the market changes its direction quickly, and trades go wrong. At this point, the trader gets fearful and waits to recover the position of the trade. Due to this, they suffer huge losses.

In Fact it is very exciting to know what Warren Buffett believes when it comes to selling stocks from a portfolio.

As he says do not focus on what price you bought the stock and at what price the stock is trading. Businesses take time to develop. If you find any other stock you find which is more lucrative in terms of valuation, it’s time to sell the existing one .

Secondly , as he says, if there are any major economic changes in the stock, it’s time to sell. Let me give you an example. Before Covid 19 , Warren Buffett sold his investments in airline stocks. Reason being, due to pandemic people will stop travelling and Airlines will get impacted.

Third, he believes that if a single holding gets too large in a portfolio, it’s time to sell some of it. Well, it’s an advice we have been getting through our life from our elders to not put all your eggs in one basket. The same strategy can be followed here.

By the way Investing into markets will fetch extraordinary returns if you invest for a long term. Now here, the meaning of long term is very important. If you invest for at least 5 years or more, your investments will fetch good returns. Short term volatility may impact portfolio returns but in the longer run portfolio will help you achieve your financial goals. So unless it’s an emergency, it’s not advisable to sell your stocks.

Now let’s see what traders should do.

Stick to your strategies

If you are following a particular strategy and if it gives you a signal to sell the holdings, then you need to follow that.

Follow your risk and reward ratio:
Every trader should have a risk and reward ratio so that they never lose their entire amount in one trade. Risk and Reward ratio should be decided as per your funds.

So on the top of everything , discipline and sticking to the process is the key driving force behind a success in the market.

Till that time , have a happy weekend.

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