5 Tips on The Right Time to Sell Your Stock
May 23, 2018
If you remember Facebook’s IPO back in 2012, you might also remember its rocky start. For an entire year, Facebook’s stock performed poorly, with heavy criticism of the slow adoption rates of the social platform. During that time, you can understand how the technical hiccups and skepticism surrounding Facebook’s profitability might have influenced shareholders to sell their stock. Today, Facebook is worth over $226 billion and anyone holding shares at the IPO has seen their investment grow more than five times.
The situation above is the ideal setup for panic selling, or the selling of stock due to sudden fears of predicted decline in demand or drop in market value. For novice investors, when you start to see your stock fall, it can be tempting to sell as quick as possible. On one hand, selling stocks at the right time can help minimize losses; however, selling at the wrong time can forego future returns. Deciding when to sell a stock can be tricky, so here are some things to think about if you’re considering selling your stock:
1: The Stock Drops Below or Rises Above Your Target Price Range
Before you buy stock, a good strategy is to set a target price range for yourself. Write down the target return you would be satisfied earning from the stock pick, and the lowest you would be comfortable letting your money to fall. Keep track of your watchlist to monitor your stock picks. Once the stock falls below or rises above the range you set, now is the time you should consider selling.
2: There Are Significant Changes in Business Landscape
Assuming you the followed our most important investing tip, you should have a good understanding of a company’s main attributes, the competitive landscape of the industry, and the company’s financial outlook. There are a few major changes you should be aware of that could affect a company’s stock, such as booming competition, environmental changes, societal trends, and economic conditions, to name a few. For example, Target experienced a difficult fourth-quarter when net earnings fell short by over 42.7%, due to the rapid trend towards e-commerce shopping. Together with a promising financial outlook reported by their main competitor, Walmart, Target’s stock dropped by over 12% in 2017.
3: The Company’s Financial Performance Shifts
One of the best ways you can stay up to date on a company’s health is by keeping up with company financials. Often times, the market lags behind trends in financial information because investors wait for external sources to update them on stock news – don’t let that be you. If you notice irregular patterns of revenue decline, increasing debt, or anything else that could negatively impact the company’s stock, it might be time to consider selling your stock.
4: You Need to Rebalance your Portfolio
If you’re passionate about a certain subject, you might find yourself investing into several companies competing against each other in the same industry. This is where portfolio diversification becomes extremely important to an investor. An undiversified portfolio can hurt your earnings because similar investments in the same industry are often positively correlated. In other words, your investments have the ability to make greater gains if your portfolio is diversified and based on your long-term investing strategy.
5: Your Money Holds Greater Value Elsewhere
In the end, people invest to build wealth for themselves and their families. Whether you’re buying your first car, or saving for your retirement, there comes a point when the assets you’re currently holding in stock need to be used elsewhere. In that case, selling your stock to convert those assets into cash might be a necessary decision if your money holds greater value somewhere else in your life.
How To Avoid Panic Selling
In other words, here’s how to minimize the chance of selling your stock at the wrong time. Before you start investing, you should have a clear investment strategy. Plan out what you are saving for, when your time horizon is, and how much potential loss you’re willing to undertake, as this determines what kind of investments you should be making. By following an investment strategy aligned with your long-term objectives, you can feel confident holding stocks that you see value in, even when the market value dips.
One of the greatest reasons to invest is to build wealth for yourself and your family. Knowing the signs of a right (and wrong) time to sell your stock can help you make better financial decisions to reach those future goals. Starting an investment club allows you to pool your resources and build wealth together with your loved ones!