{"id":3743,"date":"2018-11-26T09:00:48","date_gmt":"2018-11-26T03:30:48","guid":{"rendered":"http:\/\/capitalante.com\/?p=3743"},"modified":"2020-05-05T11:20:20","modified_gmt":"2020-05-05T05:50:20","slug":"when-to-sell-a-stock","status":"publish","type":"post","link":"https:\/\/capitalante.com\/when-to-sell-a-stock\/","title":{"rendered":"When to Sell a Stock"},"content":{"rendered":"<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">There is a common perception among the investors that it is necessary to hold a stock for a long time horizon to say 15-20 years after making a proper analysis of <span style=\"color: #ff0000;\"><a href=\"http:\/\/capitalante.com\/fundamental-analysis-of-stocks-step-by-step\/\" target=\"_blank\" style=\"color: #ff0000;\" rel=\"noopener noreferrer\">fundamentals<\/a><\/span>,<span style=\"color: #ff0000;\"> <a href=\"http:\/\/capitalante.com\/technical-analysis-of-stocks\/\" target=\"_blank\" style=\"color: #ff0000;\" rel=\"noopener noreferrer\">technical<\/a><\/span>, <span style=\"color: #ff0000;\"><a href=\"http:\/\/capitalante.com\/stock-picking-strategies\/\" target=\"_blank\" style=\"color: #ff0000;\" rel=\"noopener noreferrer\">qualitative<\/a><\/span>, balance sheet as well as profit and loss account, <span style=\"color: #ff0000;\"><a href=\"http:\/\/capitalante.com\/free-cash-flow\/\" target=\"_blank\" style=\"color: #ff0000;\" rel=\"noopener noreferrer\">free cash flow statement<\/a> <\/span>etc. It is a profitable deal to invest in stocks for a long-term <g class=\"gr_ gr_112 gr-alert gr_gramm gr_inline_cards gr_run_anim Grammar only-ins replaceWithoutSep\" id=\"112\" data-gr-id=\"112\">because<\/g> historically equity asset class rallies in term of returns than the other asset class over a long-term horizon. The investment in stock and holding the stock for a long tenure is the best.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Now, the question arises when to sell <g class=\"gr_ gr_111 gr-alert gr_gramm gr_inline_cards gr_run_anim Grammar only-del replaceWithoutSep\" id=\"111\" data-gr-id=\"111\">a stock<\/g> to gain maximum profit. In this column, we will discuss when and how to sell the stock that you have in your portfolio. At the time of selling a stock portfolio or any individual stock, you should consider the following 8 points.<\/span><\/p>\n<h6><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Consider the current market scenario<\/strong><\/span><\/h6>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">There are a few factors on the basis of which you should select a stock. You should analyze whether the company has maintained consistent sales or profit growth if the company has a competitive advantage or it has been successful to create entry barriers. After checking all these factors if you find they are not satisfactory, you have a good reason to sell the stock. Let\u2019s make it clear with an example.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">In the beginning, the Smartphone maker Blackberry had quite impressive numbers in respect of market cap, return on equity, compounded sales growth, compounded profit growth etc. But after APPLE came, it has given a tuff competition to blackberry and erodes all the market share of blackberry. Apple is now the market leader in the world. Now the conclusion is that the current market scenario has been changed. This is a clear indication that you should sell the stock of Blackberry and start investing in APPLE.<\/span><\/p>\n<ul>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Read also:<span style=\"color: #ff0000;\">\u00a0<a href=\"https:\/\/www.investopedia.com\/financial-edge\/0412\/5-tips-on-when-to-sell-your-stock.aspx\" ping=\"\/url?sa=t&amp;source=web&amp;rct=j&amp;url=https:\/\/www.investopedia.com\/financial-edge\/0412\/5-tips-on-when-to-sell-your-stock.aspx&amp;ved=2ahUKEwie8YaK_b_eAhWPT30KHQrzB40QFjABegQICRAF\" style=\"color: #ff0000;\" target=\"_blank\" rel=\"noopener\"><\/a><a href=\"https:\/\/www.investopedia.com\/financial-edge\/0412\/5-tips-on-when-to-sell-your-stock.aspx\" style=\"color: #ff0000;\" target=\"_blank\" rel=\"noopener noreferrer\">5 Tips On When To Sell Your Stock &#8211; Investopedia<\/a><\/span><\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Read also:<span style=\"color: #ff0000;\">\u00a0<a href=\"https:\/\/www.fool.com\/investing\/2018\/04\/14\/how-to-know-when-to-sell-a-stock.aspx\" ping=\"\/url?sa=t&amp;source=web&amp;rct=j&amp;url=https:\/\/www.fool.com\/investing\/2018\/04\/14\/how-to-know-when-to-sell-a-stock.aspx&amp;ved=2ahUKEwie8YaK_b_eAhWPT30KHQrzB40QFjAMegQIDBAB\" style=\"color: #ff0000;\" target=\"_blank\" rel=\"noopener\"><\/a><a href=\"https:\/\/www.fool.com\/investing\/2018\/04\/14\/how-to-know-when-to-sell-a-stock.aspx\" target=\"_blank\" style=\"color: #ff0000;\" rel=\"noopener noreferrer\">How to Know When to Sell a Stock &#8212; The Motley Fool<\/a><\/span><\/span><\/li>\n<\/ul>\n<h6><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Has the stock been overvalued<\/strong><\/span><\/h6>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Practically, all sectors with high P\/E ratio do not mean that they are overvalued. The market is bullish on these sectors due to robust earnings growth, profit margin, and inches towards higher levels. They are able to deliver steady returns in the near future just because of their business model, management quality and after all the future potential of any specific sector.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">On the other hand, the lower P\/E ratio of a sector does not mean that this sector is undervalued and is going to boom and deliver a multi-bagger return in the near future with compared to those sectors which have higher P\/E ratio. These sectors have higher valuation just because the market is bullish on these sectors and their future potential like Automobile, FMCG, Petroleum, etc. They are core sectors of the Indian economy and have the potential to deliver a robust performance in the upcoming years.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">You need to invest in such companies or stocks which have low P\/E ratio compared to stocks with high P\/E ratio after analyzing the factors like Debt ratio, Compounded Sales Growth, Compounded Profit Growth, Market Cap, and Return on Equity, management etc.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Suppose you want to invest in paints and pigments sector. After fundamental analysis, you notice that Asian paints satisfy all the conditions, but has a high P\/E. So you decide to invest in paints sectors which have a strong entry barrier and will be able to deliver steady returns in the near future. You should search for such company or stock which has strong fundamentals i.e., Debt ratio, Compounded Sales Growth, Compounded Profit Growth, Market Cap, and Return on Equity etc.\u00a0<\/span><\/p>\n<h6><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Do you have the time to monitor the company\u2019s performance<\/strong><\/span><\/h6>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">After buying a stock you must keep a close eye on quarterly results as well as <g class=\"gr_ gr_106 gr-alert gr_gramm gr_inline_cards gr_run_anim Grammar only-ins replaceWithoutSep\" id=\"106\" data-gr-id=\"106\">early<\/g> results of the company. Suppose, you have invested in growth stocks, you need to analyze balance sheet and profit and loss account whether sales margin as well as profit margin, EBITDA margin, increasing or not year-on-year basis is satisfactory. If you find that the sales or profit margin decreases year-on-year basis then you need to sell this stock. If you do not have much time to monitor your stocks you should invest in the stock market via the mutual fund or exchange-traded funds.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\"><a href=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/01\/How-to-analyse-Profit-and-Loss-account-2.png\"><img loading=\"lazy\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2019\/01\/How-to-analyse-Profit-and-Loss-account-2.png\" alt=\"When to Sell a Stock\" width=\"945\" height=\"756\" class=\"aligncenter size-full wp-image-4844\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2019\/01\/How-to-analyse-Profit-and-Loss-account-2.png 945w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/01\/How-to-analyse-Profit-and-Loss-account-2-300x240.png 300w, https:\/\/capitalante.com\/wp-content\/uploads\/2019\/01\/How-to-analyse-Profit-and-Loss-account-2-768x614.png 768w\" sizes=\"(max-width: 945px) 100vw, 945px\" \/><\/a><\/span><\/p>\n<h6><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Rebalance your portfolio according to the situation or need<\/strong><\/span><\/h6>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Rebalancing your portfolio implies a change in the distribution of your fund in various asset class i.e., equity, debt, tax saving instrument etc. This change is important when one or more stocks in your portfolio have performed well and a good return on equity, in that case, you need to buy more in those profitable stocks than the average return paying stocks in the upcoming months.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">If you find another stock which has quite better numbers then you should invest in such stocks in the upcoming months. You need to consider the other asset class too. Let\u2019s make it clear with an example. You can move your investment in debt instruments, such as debentures, PPF, NSC etc. with the growth of your age.<\/span><\/p>\n<h6><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>If the company has cut the dividends to its shareholders<\/strong><\/span><\/h6>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">A dividend cut is vital points to consider if you have invested in such companies which have yielded a better dividend. If the dividend of the company is decreasing year-on-year then you need not worry and abandon the stock. You should re-analyze the company\u2019s financial health. If a company cuts dividend you may check the following points,<\/span><\/p>\n<ul>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Whether sales or profit margin decreases quarter-on-quarter,<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Whether the company\u2019s growth decreases because of strong competition in the market by the peer companies,<\/span><\/li>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">The company\u2019s debt increases or not quarter-on-quarter,<\/span><\/li>\n<\/ul>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">If the dividend cut is due to the buyback of shares or the company is paying off the debts to make the company debt free then you need <g class=\"gr_ gr_141 gr-alert gr_gramm gr_inline_cards gr_run_anim Grammar only-ins replaceWithoutSep\" id=\"141\" data-gr-id=\"141\">not<\/g> sell the stock. But if the answer is any of the above then you need to sell the stock.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Let\u2019s make it clear with an example. On several occasions, we witness a sharp rise in the price of crude oil in the international market. As a result of the increase in crude oil, oil marketing companies cut their dividends. Again after some time the crude oil trades in lower price. So, you need <g class=\"gr_ gr_114 gr-alert gr_gramm gr_inline_cards gr_run_anim Grammar only-ins replaceWithoutSep\" id=\"114\" data-gr-id=\"114\">not<\/g> worry or sell the stocks of oil marketing companies.<\/span><\/p>\n<h6><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>If any better opportunity is available in the market<\/strong><\/span><\/h6>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Suppose you own one optical fiber company\u2019s stock namely Sterlite Technologies. But after one year repeatedly bad news comes out about another market leader Finolex Cables. Obviously, Finolex Cables will show some correction in its stock price. You can use this correction as an opportunity to buy Finolex Cables stock by selling some Sterlite Technologies stock which you have. You will get the Finolex Cables at a much cheaper valuation.<\/span><\/p>\n<h6><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Whether a takeover or merger has recently been announced &amp; completed<\/strong><\/span><\/h6>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">When a market leader of any industry takes over a smaller company, the share price of the smaller company increases as merger benefits the larger company in long run because with the help of merger the company can enter in the new segment. Just collect news which companies are going to be merged. If you have shares of a small cap company, just hold the stock until the merger date of the company.<\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Then before the official merger on a particular day, you can sell your stock and make money. Let\u2019s make it clear with an example. Capital First has been merged into the IDFC Bank. It is a <g class=\"gr_ gr_135 gr-alert gr_spell gr_inline_cards gr_run_anim ContextualSpelling multiReplace\" id=\"135\" data-gr-id=\"135\">favourable<\/g> deal for the IDFC Bank. With this merger, the IDFC bank can expand its business in the rural economy because Capital First has a large market presence in the rural economy.<\/span><\/p>\n<h6><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>Selling of stock at an emergency<\/strong><\/span><\/h6>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\"><g class=\"gr_ gr_130 gr-alert gr_gramm gr_inline_cards gr_run_anim Grammar only-ins doubleReplace replaceWithoutSep\" id=\"130\" data-gr-id=\"130\">Equity<\/g> asset class is a good investment option if you have a long-term horizon. But any emergency requirement of a fund may be created in your life. In that case, you have to sell your portfolio partially or wholly. To avoid the selling of stock at an emergency, you must<span style=\"color: #ff0000;\"> <a href=\"http:\/\/capitalante.com\/how-to-manage-emergency-fund-step-by-step\/\" target=\"_blank\" style=\"color: #ff0000;\" rel=\"noopener noreferrer\">create an emergency fund<\/a> <\/span>that consists of your 6 months\u2019 income. If you need money after one year or less for any purpose, you can invest in liquid funds to gain satisfactory returns with minimum risk.<\/span><\/p>\n<h3><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\"><strong>How Capitalante can help you<\/strong><\/span><\/h3>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Are you confused about how to prepare an effective financial plan to achieve financial freedom? If yes, learn<span style=\"color: #ff0000;\">\u00a0<a href=\"http:\/\/capitalante.com\/financial-planning-services\/\" target=\"_blank\" rel=\"noopener noreferrer\" style=\"color: #ff0000;\">how to prepare an effective financial planning<\/a>.<\/span><\/span><\/p>\n<p><span style=\"font-family: georgia, palatino, serif; font-size: 14pt;\"><a href=\"https:\/\/www.instamojo.com\/@capitalante\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" src=\"http:\/\/capitalante.com\/wp-content\/uploads\/2020\/03\/Financial-Planning-eBook.png\" alt=\"Financial Planning eBook\" width=\"728\" height=\"90\" class=\"aligncenter wp-image-6837 size-full\" srcset=\"https:\/\/capitalante.com\/wp-content\/uploads\/2020\/03\/Financial-Planning-eBook.png 728w, https:\/\/capitalante.com\/wp-content\/uploads\/2020\/03\/Financial-Planning-eBook-300x37.png 300w\" sizes=\"(max-width: 728px) 100vw, 728px\" \/><\/a><\/span><\/p>\n<ul>\n<li><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #000000;\">Read also:<span style=\"color: #ff0000;\">\u00a0<a href=\"http:\/\/capitalante.com\/4-steps-to-avoid-loss-in-stock-market\/\" title=\"4 Steps To Avoid Loss In Stock Market\" rel=\"bookmark noopener noreferrer\" target=\"_blank\" style=\"color: #ff0000;\">4 Steps To Avoid Loss In Stock Market<\/a><\/span><\/span><\/li>\n<\/ul>\n<h6><span style=\"font-family: georgia, palatino, serif; font-size: 14pt; color: #0000ff;\">Have you any question regarding when to sell a stock? Feel free to comment so that we have a discussion. If you found this post helpful please share with your loved ones.<\/span><\/h6>\n","protected":false},"excerpt":{"rendered":"<p>There is a common perception among the investors that it is necessary to hold a stock for a long time horizon to say 15-20 years after making a proper analysis of fundamentals, technical, qualitative, balance sheet as well as profit &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"When to Sell a Stock\" class=\"read-more button\" href=\"https:\/\/capitalante.com\/when-to-sell-a-stock\/#more-3743\">Continue Reading<span class=\"screen-reader-text\">When to Sell a Stock<\/span><\/a><\/p>\n","protected":false},"author":6,"featured_media":3898,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[110],"tags":[],"_links":{"self":[{"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/posts\/3743"}],"collection":[{"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/comments?post=3743"}],"version-history":[{"count":0,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/posts\/3743\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/media\/3898"}],"wp:attachment":[{"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/media?parent=3743"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/categories?post=3743"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/capitalante.com\/wp-json\/wp\/v2\/tags?post=3743"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}