In the world of investing, the timing of buying and selling stocks is really crucial. But sometimes, determining when you need to sell your stocks becomes much more complicated and challenging than buying a stock.
Just the way your decision of buying a particular stock is influenced by several factors, there are also some factors that will determine the right time to sell your stocks. Timing is really crucial in the space of stock investment.
When To Sell A StockHere I will guide you with some factors that will help you to decide the best stocks to buy now. If you are thinking about selling your stocks, make sure you are checking for all these factors.
Hits The Target priceAt the time of buying a stock, the investor sets a price target, or a range of price, in which he or she will consider it to sell. Every stock purchase should have an analysis of what the stock is worth. The current price of the stock ideally should be at a substantial discount to this very estimated value.
For example, you should aim for selling out of stocks when it doubles your prices, and you also need to make sure that the prices should seem 50% undervalued by the investor who is considering buying it. Even for most seasoned investors, coming up with a single price target may seem really difficult, thus considering a range will be more realistic.
Deterioration In The FundamentalsAfter setting up a price target, along with keeping track of the stock price of a firm, it is also important to monitor the performance of the same underlying business. In case the fundamentals of the business decline, it can be the key reason to sell your stocks.
Prior to the decline of the stock price, as an investor, you will be able to realize a deterioration in cash flow, profit margins, and sales in an ideal world. So, if you witness fundamentals deteriorating, you need to consider the time for selling your stocks.
A Better opportunity ComeBy going with an alternative, you can obtain the benefits from opportunity costs. Prior to owning a stock, do not forget to compare it with the potential gains that you can get from owning any other stock. If you find the alternative better, it obviously makes sense to sell the current one.
So, if you get such an option that will offer you more gains, you can consider selling the current stock. Identifying opportunity costs accurately is extremely difficult. So, go for some professional help here.
After A MergerThe average price, or takeover premium at which any company is purchased, normally differs between 20% to 40%. If, as an investor, you become lucky enough to own a stock, which is being acquired for a significant premium, selling it can be the best course of action.
There can be merits in continuing with stock investmentafter the merger process is completed, as the competitive position of the combined companies may improve substantially. But the track record of mergers being successful is awful. Apart from this, it also can take several months to complete the deal. So, selling stocks at that point in time is better.
After BankruptcyIn most cases, a bankrupt company simply becomes worthless to shareholders, so it is obvious to sell it. But for tax purposes, it is really crucial to realize the loss or sell so that you can use it for offsetting the future capital gains.
In addition to it, a small percentage of regular yearly income is also present. It is true that after bankruptcy, selling stock will result in a huge loss, but it is the only way to recover a part of the dollars you have invested.
Final TalksSo, these are the things you need to consider for evaluating the time when you need to sell your stocks. The motto is to gain maximum returns or avoid most of the losses, so plan accordingly and make the final decision.
HussaiN is a full-time professional blogger from India. He is passionate about content writing, tech enthusiasts, and computer technologies. Apart from content writing on the internet, he likes reading various tech magazines and several other blogs on the internet. Email ID: [email protected]
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