When is a 'good time' to sell a stock?
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Well the answer to this is simpler that to the first question. One should not sell a stock for any reason except for valuations. Let us try and elaborate this further. Owning a stock should be like owning the entire business itself. And when one is the business owner, one really does not look at the market prices. Whether prices go up or down, it is irrelevant. What is relevant is how the business is performing. And if the business performance is not up to the mark then the point to be thought about is are corrective actions being taken to rectify the same?
As an investor too one needs to follow the same philosophy. True if the company's fundamentals are deteriorating and the management is not taking any corrective action, then one should definitely sell the stock. But if this is not the case, then the only other reason to sell the stock would be that the prices no longer justify the underlying fundamentals. When this happens it means that Mr Market is assigning a price that is way too high. And eventually the price will have to fall to start reflecting the stock's intrinsic value. This is a clear indicator to sell the stock. While the stock may continue to go up even after the sale but it is wiser to be careful rather than being sorry. Because when the tides turn, these overvalued stocks are the first in line to nosedive.
When do you think is a good time to sell a stock? Share your comments with us or post your views on our Facebook page.
01:10 | Chart of the day | |
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* Data for private & state plants. Data from April to July 2011
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This can put immense pressure on the developing economies to sustain growth. But if China and India do not take care of their own fiscal position, a rating downgrade for them too is around the corner. Rating agencies have already warned China of a downgrade in credit rating within two years due to the large debt loads of the country's banks. There is no reason why lack of improvement in India's fiscal deficit situation cannot attract the same penalty. We thus remain conservative about India's long term GDP growth prospects and suggest that investors keep their return expectations moderated.
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We believe that had money printing been the solution to avoiding an economic downturn, Zimbabwe would have been the richest nation on earth. Instead, what happened in Zimbabwe was inflation ran rampant, going as high as few thousand percent or may be even more. Furthermore, money printing also did not yield any fruitful results for the US economy which has already given QE1 and QE2 a fair shot. For an economy to grow, people making productive investments need to know what the right interest rates are. Lowering the same for a temporary period by indulging in money printing leads to malinvestments and nothing else. A fresh round of genuine recovery begins only when these malinvestments are liquidated or purged out of the system. Providing more paper money ends up making matters worse and prolongs the problem. People like Krugman though would have none of it. They somehow want to short circuit the process of correction and go straight to good old days of robust economic growth again. As outlined earlier, this looks next to impossible.
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In the short term, seasonal factors may have resulted in slowing down of activities especially because there were heavy rains all across the country. After the monsoons, the infrastructure projects may get back on track. However, there are bottlenecks in the path of growth. We all know that in India, infrastructure is taken care of by both the private players and the government. On one hand, higher interest rates dissuade the private companies from investing in these activities. On the other, government's laidback attitude in executing reforms results in slower development of infrastructure. The quarterly growth number is just one of the indicators of the current state of affairs of the economy. But if the investment in infrastructure does not pick up, this number may become the trend in the days to come.
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04:56 | Today's investing mantra |
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6 Responses to "When is a 'good time' to sell a stock?"
Raviraj
Sep 12, 2011Your suggestion regarding when to sell stock makes sense.Though one can also sell stocks or book profit 50% of the holdings if the stock price reaches the target price else we may miss the opportunity provided by the market.This will give a sense of satisfication and we purchase another stock available at the best price.Else it may happen that we may hold the stock for long time witnessing bear and bull phase.
Sridhar
Sep 12, 2011Easier said than done. Barring few sophiscated investors nobody knows what is the instrinsic value of a stock.Additionally this also gets influenced by market condition,Global scenario, liquidity etc There is no one price which can be termed as intrinsic price.It is a set of assumptions
mohammad umar kadiawala
Sep 12, 2011Before buying a stock one should observe the field of the companys business its fundamentals and to which extent company havin a domination in the market, secondly perticularly in voltile market as current situation markets dancing over FII fingertips,so inveser should observe the companies business is mostly depend on local market as most of the revenues coming from local and u can observe such companies market share not much effected even huge slump in the market.
anupam garg
Sep 12, 2011Chinese banks' debt levels r rising, hence recession...China's imports are rising & inflation declining, hence signs of economy remaining robust
its not just equitymaster, i've not been able to find a single coherent view on China anywhere
disappointed to note tht an explanation (though there's never 1) for today's market crash is not given
S.K.Damani
Sep 12, 2011Sir,
Sorry that I do not agree with your views on when to sell your stock. It is all very well to think that when you buy a stock, you are owner of the Co. . This is all in theory. Practically at least a small investor NEVER comes to know how the M'ment is actually governing the working of the Co. Your recent poll had thrwon up the answers. Except TATA, which is another name for trust in Indian economy, NONE of the rest of the m'ments can be relied upon. Including Ambanis.
(Remember: MS Sheos, HFCL Nahata, present GTL Mr. Manoj Tirodkar, for every good m'ment there are 100s of fly by nights operators)
Why talk about Private corporates. Even Govt. owned IDBI BAnk has not given good returns to the investors. Issue price 130, thereafter one bonus and still the price is below the original issue price. One can write a book on such facts.
In practical terms, every investor should be very smart and consider Stock markets as the place to create wealth for himself and the dividend of the Co. as a source of income for his retirement. And therefore while buying the stocks, you have to be very careful and having once bought it, SELL 50 per cent OF THE STOCK AS SOON AS THE PRICE DOUBLES FROM YOUR PURCHASE PRICE. ie. Book profit as soon as the stock moves up 40 - 50per cent, rendering thereafter the purchase price to be almost 'zero'.
Thereafter if the Co. is good, it will give bonus, good dividends, WHICH SINCE YOUR INVESTMENT PRICE IS ALMOST ZERO, is the fruits of your returns for your hard earned invesmtent.
And if the co. is bad, well you have not lost any monies.
THE MARKET THROWS UP SUCH OPPURTUNITIES EVERY DAY, EVERY MONTH AND EVERY YEAR. AMPLE OPPURTUNITIES.
Hope you will appericiate this statergy.
AND THE MOST IMPORTANT ASPECT IN ALL THESE IS THAT YOU REQUIRE A GOOD BROKER.
Thanks,
Damani