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Understanding The Right Time To Sell Your Stocks

Apr 15, 2008
When it comes to investing in stocks, investors usually spend a lot of time in determining what particular stock to buy and the quantity they should buy. The process involves tracking not only the performance of the stock they are interested in but also the market in general before a decision is made to buy. The same holds true when selling your holdings.

Although most people handle their stock investments through brokers, it is best to do your own homework and not be at the mercy of somebody whose only interest is to make money, regardless if that is exactly the same motive you have for investing.

If you have chosen your stock portfolio wisely, chances are you do not have to sell them for a long time. You can hold on to them even if their value does not go up as much as the others because of their stability. However, there are instances when you do have to sell and that is when the dilemma comes in, when is it time to really sell your stock holdings?

For most investors, the rule of thumb is to sell only when you have already realized your financial goals, not before.

Considering that the value of stocks is similar to a roller coaster ride and is highly dependent on the world economy in general, people mistakenly believe that whenever there is worldwide recession that then is the right time to unload stock holdings. However, stock values are as unpredictable as the weather, there are times when they go up and down for no reason at all. When stock values drop, even your broker may advise you to sell, however, this is not always the logical course of action.

Stock values may drop due to attrition or overall market conditions, because the stocks of companies A, B, C and D dropped, stocks of company E may also drop not because of the same reasons but as a market reaction to the situation of A, B, C and D.

More research must be done and a careful analysis of the variables involved studied in order to determine the causative factor for the drop in value of the stock of E. There are only three reasons why you should sell your stock holdings, these are:

1.Sell your stock portfolio only if you have already achieved your financial goals. This is the perfect time to unload your stock holdings and put them in safer investment portfolios like government bonds, treasury notes or time deposits.

2.Secondly, if the company you invested in diversifies into uncharted business waters and the general consensus among market analysts is that the move may cause the company's stock to go down. When this happens, sell your holdings as soon as possible in order not to get burned. Of course, the opposite may happen but that is a risk you have to take.

3.The best time to sell is when the value of your holdings goes ballistic. Since what goes up must come down, it is best to sell at this point, regardless if the value continues to go up at least you would have at least already gained 50 to 75 per cent (or more) of your original investment.

A simple word of advise is always to consult a broker or financial adviser; not one but two in order to have a second opinion on the matter and always do your own research instead to totally relying on the decision and advise of others. This way you will reach your financial goals sooner than you planned.
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