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Dear Investor, Here Are Tips on When to Sell your Stock

BY Jane Muia · May 20, 2022 02:05 pm

KEY POINTS

Knowing whether to hold or just sell your stock can be challenging. But driven by various factors, including risk tolerance, time horizon, and financial goals, an investor can quickly be sure of what to do.

KEY TAKEAWAYS

Sometimes it may make sense to sell a stock if a company has been acquired or merged with another company. The stock price can often rise dramatically if it is acquired for a significant premium.

If you want to invest in the stock market, be prepared to invest time and money in your quest for healthy returns. The decision on when to buy a stock can sometimes be easier than knowing when is the appropriate time to sell a stock.

Investors need to be able to determine their time horizons before purchasing stocks or any type of investment. Knowing whether to hold or just sell your stock can be challenging. But driven by various factors, including risk tolerance, time horizon, and financial goals, an investor can quickly be sure of what to do.

There are several good reasons to sell your holdings, both to lock in profits at the right time or to stem losses before they grow too large. Here are tips that will help you figure out the best time to sell your stocks.

  1. A Better Opportunity Comes Along

Opportunity cost is a benefit that could have been obtained by going with an alternative. Before owning a stock, always compare it with the potential gains obtained by owning another stock. If that alternative is better, it makes sense to sell the current position and buy the other.

Accurately identifying opportunity cost is extremely difficult but could include investing in a competitor if it has equally compelling growth prospects and trades at a lower valuation, such as a lower price to earnings multiple.

  1. When the share price reaches your target value

If a stock you hold has achieved your objectives – that is, reached a target price that you have set – it could be time to sell and reinvest the proceeds somewhere else. This may take some resilience if it looks like the stock is still going up.

ALSO READ: I Invest in Things With Valuable Output, Bill Gates on Cryptocurrency

  1. Change in Ownership

Sometimes it may make sense to sell a stock if a company has been acquired or merged with another company. The stock price can often rise dramatically if it is acquired for a significant premium. As a result, investors may sell the stock after the merger. However, it’s essential to determine whether the company’s fundamentals are better after the merger or acquisition and if not, it may be time to sell and put the money elsewhere.

  1. After Bankruptcy

This may seem obvious, mainly because, in the vast majority of cases, a bankrupt company becomes worthless to shareholders. However, for tax purposes, it is important to sell or realize the loss so that it is used to offset future capital gains and a small percent of regular income each year.

Selling a stock right after bankruptcy will often result in a significant loss, but you may still be able to recover some cents.

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