Knowing when to sell you shares is a careful consideration, if you sell at a high price will you miss out on future profits? Conversely is share price falling beyond repair and time to sell? Here’s some telling signs that may help.
Should I Stay or Should I Go? The Dilemma
If you’re considering selling a share, you’re probably in one of two scenarios:
- Either the share price has risen so much and you are looking to take the profits. Th dilemma here is how much further will the share price go after you sell?
- Or the share price has fallen so much and you are doubting the benefits of holding. The dilemma is do you continue to hold in hope of a recovery.
We all have finite capital and there may be better opportunities elsewhere. So knowing when to sell is important. Whilst it is widely acknowledged investing in shares is for the long-term, it doesn’t necessarily mean that you can afford to sit back with a view to things will just get better over time.
Have a Sell Price in Mind – Positive and Negative
One of the best ways to bring objectivity to your decision is to have a set price you’d be happy to sell your shares at. Once this price is hopefully achieved – sell! Likewise, this also applies to less favourable circumstances – consider the price at which you want to sell a stock should it fall to levels you are not comfortable with.
Many Online Brokers have stop-losses and these can work in both circumstances – to sell if a share price falls below a level you specify, or to sell if a share price hits the level you want to sell at (sell limit order).
Has the Stock Peaked and is it Overvalued?
The higher they rise, the harder share prices eventually fall. Shares go for periods of on a trajectory of growth in the 000’s of %, only for one set of results to send a reality check to the market and investors.
Understanding if a company is overvalued is inherently difficult – even those who dedicate their careers to analysis shares as equity analysts regularly get it wrong and conflict on their views.
However, you can get it right! Doing your homework, understanding the qualitative aspects of the company, the growth prospects of its markets and the wider macro trends can help you to make a balanced view.
Combined with analysis such as charting and ratios analysis such as P/E Ratio to see if a company is overvalued can all be helpful considerations.
How long you are prepared to hold a share for also depends on your need for capital. There may just be better opportunities elsewhere, or you need the capital for other personal circumstances.
Stay Calm – Don’t Make Knee-Jerk Reactions
Share prices and markets tend to respond to bad news on a short-term basis, but that doesn’t mean you should panic as an investor. If the price of your shares fall it doesn’t mean it is an indicator to sell, there may have just been an overreaction in the market.
Key to this is understanding just how bad the news or performance is. If it’s a fundamental blocker to future success, then it is probably time to sell-up if you have lost faith in it.
Look Out for Dividend Cuts
Finally, if a company cuts or reduced its dividends (the income paid out to investors), then it could be time to consider if it’s time to sell – particularly if you have invested in a share for income rather than capital growth.
The reducing or cutting of dividends can be a sign that the company doesn’t have enough profit to comfortably distribute it to investors. This could be due to poor performance or in cases that it’s redirecting its profits to help fund an ambitious growth strategy.
Remember, There’s Always another Share
There are thousands of shares available on the market (including globally). Remember if you do sell, there is always another share to invest in. But the golden rule is to know why you are selling. It may be because you need to take the profit, have your eye on another opportunity or because you can’t risk of sustained losses.