Rules for Selling Stocks
Four simple rules for selling
Rule 1: Don't wait for the "highest price"
Most investors wait for stock prices to peak before selling. This may seem to be the obvious way to get the best price for your stocks but the difficulty lies in judging when a particular stock has actually reached its peak. Since stock prices have a tendency to fall steeply and suddenly after touching the peak, the chances are that you may end up selling at a much lower price than what you had intended. Therefore, don't wait for Stock prices to peak before selling .Sell as soon as you feel that you
have made adequate profits on your investment. Buying low and selling high does not necessarily imply that you must buy at the, lowest dip and sell at the highest peak. Therefore, don't allow yourself to get obsessed with the idea that in order to make money on the stock markets you must only buy at the lowest dip and sell at the highest peak. Most successful investors make a lot of money and get excellent returns on their stock investments by buying and selling in an intermediate range of prices.
Rule 2: Sell a stock when your target price is reached
When you buy stocks of a particular company, you do so with a certain goal in mind.
For example. you may have bought them with the intention of doubling your investment in two years. We recommend that you sell the stocks the moment you reach, or cross, your target. If your stocks double in less than two years, you should sell them straightaway because you have already achieved your objective and there is no point in holding on any longer. If prices continue to rise after you have sold the stocks you may feel that you have
missed out on the opportunity of making more money. While this may be true you should also keep in mind the converse possibility; that the price may fall after you have sold your stocks. In that case It will result in your failing to achieve your investment objective. In the long run, you will make more money if you consistently and regularly achieve your investment goals, than by trying to over achieve by squeezing additional gains from each transaction.
Rule 3: Once you realize you may have made a mistake-sell!
You buy a stock on the basis of a careful assessment of the future working of a company. It may nevertheless turn out to be a bad investment. In such a situation we recommend that you sell your stocks immediately, even if it means incurring a substantial loss. There is no point in holding on in the vague hope that things may eventually improve; wishful thinking is not the way to get rich in the stock markets. If some investment turns out to be bad, admit your mistake, cut your losses, and pull out without further delay. Remember, you are not alone in making mistakes. Even the most successful stock market operators, the ones who have amassed millions, readily admit that they too frequently make mistakes. Despite that they have succeeded in making a lot of money. So will you, provided you understand the importance of cutting your losses.
Rule 4: Sell a stock if you wouldn't buy it at its prevailing price
How to decide which stock to sell and which to keep. Every investor has to make this decision ever so often. A shrewd and foresighted investor sells regularly, not only for encashing capital gains but also for improving his portfolio by adding stocks of companies belonging to newly emerging high growth sectors of the economy. We suggest a simple rule for deciding which stock
to sell and which to keep: "Don't hold a stock which you wouldn't buy,"
In most cases you will find this a useful rule of the thumb technique for updating your portfolio. The reasons for holding on to a stock are virtually the same as those for buying it. If you are not prepared to buy a stock at a particular market price, then there is no reason why you should keep it. There is no point in holding on to a stock simply because you already possess it. So always ask yourself the question. "Is this stock worth buying at its present price?" If not, then you should sell it immediately because if a stock is not worth buying at its current price, then it is not worth holding on to either!
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