How to know the Right Time to Buy, Sell, or Hold Stocks?
The share market is an arena offering numerous opportunities to grow wealth.
Despite the multi-financial products being traded, the basic mantra of trading remains the same – buy at dips and sell at highs. The tricky part is to judge whether it’s the right level of dip to enter the position or wait further. Similarly, there are apprehensions when prices appreciate, and you dawdle whether to square off or wait further. For long-term investors, knowing when to buy, hold and sell are crucial decisions and should be taken with caution, as inappropriate timings can dilute the returns expected from long-term investments.
What can you look for before a buy or sell decision on Stocks?
Your risk tolerance and investment objective are the primary factors that determine whether you should buy, sell, or hold an investment. There are other factors that you need to consider holding stocks. A Demat account allows you to hold shares for as many years as you want. You just need to pay Demat account charges.
Let us explore this subject further and understand how to decide whether to buy, sell or hold a stock.
Growth of Revenue: You need to examine a Company’s revenue, not only on yearly basis but also quarterly. You can buy and hold the stock if quarterly sales show an upward trend. You can consider selling the stock if the Company’s earnings have been lower than expected in subsequent quarterly results.
Dividends: A stock that distributes dividends to its shareholders consistently is considered a good buy. When you open your Demat account they may provide you with research reports. It can be a relevant source to find fundamentally strong stocks offering dividends consistently. You can buy such stocks and hold on to them for a regular dividend payout.
Margins: A Company’s margins may increase, or decrease based on how well it is being managed. If the income is increasing, but expenses are also increasing faster, it means the Company is taking new initiatives to grow its revenue. It might be launching a new product or expanding its business operations. It can be a favourable sign to hold on to such stocks.
Market Share: Market share means the percent of total sales in a sector generated by a company. There is nothing wrong with selling the stock if the Company loses market share to competitors.
Valuation: There are different ways to determine a stock value. The most common measure is a price-earnings ratio (or P/E). The lower P/E ratio means undervalued stocks. Investors can compare the Company’s P/E to its peers in the industry. If a stock is undervalued, it is considered a good buy.
Disciplined long-term investing: As a long-term investor, you need to avoid panic over short-term movements. If the Company, you have invested in is fundamentally strong, you should continue to hold its shares despite the short-term volatilities.
When to Sell Stocks
A Stock Hits the Price Target: A trader can sell a particular stock they hold when its price has appreciated and reached close to the target price. You can decide on a specific percent appreciation in stock price, after which you will exit the position. If you have blue chip stocks and it approaches your desired target price, you can book profits and buy them later at a lower price. If it is a penny stock, it can be a favourable opportunity to book profits because it is unlikely to sustain the hiked price for an extended period. The sudden increase can be due to speculation with an impact on headlines.
Adjusting a Portfolio: One of the common reasons to sell stocks is to rebalance a portfolio according to your financial goals, risk tolerance, and investment time horizon.
Meeting Set Goals: You can sell your stocks if you have achieved your financial objectives. You can place a limit order to sell your stocks at your price or better. A Good-Till-Triggered (GTT) order type can help you place such orders. The stocks will automatically get sold when it reaches your set target price.
Opportunity Cost: Investors consider selling a stock if they find other opportunities to earn a greater return. If you hold an underperforming stock, it may be time to sell it to free up the capital to make alternative investments.
Prepare a strategy for buying, holding, or selling a stock that factors in your risk tolerance and time horizon. Also, consider various factors involved in stock investment-related decisions. You can keep a watch on its business performance and consider selling the stocks in case of a major change in the management or the business model that might adversely impact the business.
Investment in the securities market is subject to market risk; read all related documents carefully before investing.