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Friday, December 11, 2015

When To Sell Stocks

Anecdotal evidence - from occasionally watching business TV channels – shows that many small investors get attracted to the market when stock prices are rising.

They end up buying stocks at comparatively high prices. When a bear phase starts and stock prices start plummeting, they compound their problems by ‘averaging down’.

When stock prices fall even more, small investors panic and sell at a big loss. The emotional upheaval and loss of self esteem often turn them away from the stock market forever.

The moral of the story? It is important to choose stocks carefully, and buy them at a fair price. It is more important to know when to sell. Your investing success depends on it.

Remember that buying – even at a significant discount to the intrinsic value of a stock – doesn’t make anyone any money. You only make a profit (or loss) when you sell.

The fear of making a loss, and irrational behaviour (viz. thinking that by not selling a falling stock you are not incurring an actual loss) leads to even bigger losses.

In a recent article at investopedia.com, the reasons for selling a stock have been explained. Small investors – even experienced ones – may find the article interesting.

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