Purchasing stocks from high rates company is not only one of the important criteria. Moreover, it is important for you to get a better understanding of the market through self experience, of going to classes where they teach about the fundamentals of share markets etc. Do not rely on the experiences of other investors as their lucky upsides can result in your downfall.
We opt for investing in share markets in order gain more from better returns and not for losing out on our savings and entering into a debt of procuring a personal loan or a home loan etc in future, to finance our requirements. In order to benefit from the highs of the market and protect yourself during the slumps, you should know how your stocks need to be traded
Change in company fundamentals
At the time of purchasing shares of a company, you might have done a thorough back ground check about its credibility, fundamentals of the organization etc. But after a few years, luck may not favor you if a new competitor has entered the market and is providing a cut throat competition to your organization. In such cases, it is time to reassess the company’s worth and find out how beneficial are you in such change of events and reconsider the option of holding onto the shares of that particular company.
Price shoots up too high too soon
Remember the most successful investors are also among the most humble ones. If the stock prices just shot up to about 20-30% more than the price you paid to acquire it, do not be greedy and consider it to be one of the best decisions. A prudent investor will sell of those shares at that point of time when its price reaches the peak, as there are chances for a crash in the prices in such cases. Says Avinash Gupta, VP, Globe Capital Market, “Investors should consider pulling out only if their profit target has been reached. If one keeps selling in spurts, one could miss out on prospective multi-baggers.”
Stock price drops below a threshold level
After purchasing your shares, if you realize that your stock prices have gone much below than the expected level, it is best if you can intervene and withdraw your shares before you enter into a huge loss. Experts usually advocate a 15-20% stop loss, depending on your risk tolerance level.
If you think that shares of Company A are performing better than Company B, you reconsider your decision and withdraw your share from B to A. “Investors should keep an eye open for the way that the earnings season pans out and make their moves accordingly.” Ajay Parmar, head, institutional research, Emkay Global Financial Services , feels that the upcoming quarterly earnings season may provide such opportunities.
Portfolio re balancing:
Apart from all these market factors, personal factors are also important when it comes to selling off shares. Over a period of time, you may find that your asset mix has become unfavorably skewed and is not aligned with your risk appetite. Perhaps, the mid-cap stocks in your basket have had a phenomenal run over the past year.