Stock Markets as lubricators of the economy
If one had a tool to tell whether a stock’s share’s next move would be higher or lower, their investment results would be pretty impressive. If they could easily and quickly check any stock share against just such a tool before they traded them, one’s portfolio would grow rapidly. This makes discerning when to sell stocks shares a key to financial success. This is not a question with one answer, there are quite a number of factors to consider. In the words of one of the investment greats Lou Simpson, “In many ways, the stock market is like the weather in that if you don’t like the current conditions all you have to do is wait a while.” The best time to buy is when others are pessimistic and prices are low. The best time to sell is when others are actively optimistic and prices are high. When buying, remember that the prospect of a high return is greater if you buy after its price has fallen rather than after it has risen. It’s best to adopt a buy or sell discipline and adhere to it.
Caution should be exercised. For example, after the share of a company declines by 30%, 40% or more, the first question to ask is why. Whyis, why did the stock share price fall as it did? Did other stocks shares in the same industry experience a decline? If so, was it as severe? Did the entire stock market fall? If the broader market or other stocks shares in the same sector performed relatively well, there may be a problem specific to this company.
Several typical warning signs can tip an investor off to changes that could mean the price will has go down. For instance when fundamentals start to fail. If the company’s fundamentals, such as sales, debt, and cash flow begin to show signs of stress, it might mean something has changed that will negatively affect the stock’s share price. Don’t wait for the market to panic over a decline in revenue or another key fundamental, rather be prepared to unload the share while you still have a healthy profit.
Many investors set a floor on the sharestock’s price so that if it falls below a certain level, they sell. You can also set an upper limit that triggers your sale. Your rationale here might be that you fear the stock share will have a difficult time supporting a market price above a certain level and any hint of bad news will send the price into a nosedive. This mindset can allow investors to make non-emotional stock-trading decisions that could reward them with higher profits over time.
When companies start cutting or eliminating dividends, it is time for investors to pay close attention to that share, to do a thorough fundamental and technical analysis that will help them to make a smart decision. Other strategies for selling include the thoughtful consideration of events that are moving against your share and causing a need to act.
If a share you own becomes the focus of media attention and receives a lot of buzz, it may be time to look at taking a profit. These types of stock-feeding frenzies attract inexperienced investors who bid up prices only to have the market collapse when the hype dies. If you’re not careful, once the frenzy dies down, you can watch the price fall down quickly, right past your profit.
A few smart trades will beat a dozen mediocre ones any day. Because the market is so often irrational in the short term—one day, there might be more sellers than buyers, and the price per share may drop more than the sellers intended—a great stock can go on sale for reasons unrelated to its financial position. To exploit that possibility, you need a list of good potential stocks to buy, a list of fair prices you think they’re worth, and the cash on hand to take advantage of these bargains.
Keep your stories about these shares up to date. Understand why you believe they’re worth what you think they’re worth. Don’t let market hype pro or con sway your valuations or tell you when to buy and sell stocks. The right time to invest is when you’ve found a bargain.