Hi there,
In my initial days, I made a lot of mistakes because of not knowing when to sell. It was quite difficult for me to decide the timing of the exit. While buying any stock is comparatively easy, it is much more important to know when to sell.
I have given some examples in my earlier blogs. One decision I regret is the decision to sell ‘Force Motors’ at ₹900. I had purchased it at ₹250 but once I saw significant profit, I immediately sold it off. Had I had the checklist to decide then, I would have held it for much longer.
According to Phil Fisher’s book “Common Stock & Uncommon Profits”(This is an awesome book & you much read it), there are certain circumstances which can help you to decide when to sell a stock:
1. When you realize that you have made a mistake in buying the stock, get out of that stock immediately.
2. The company has reached a stage where it is not able to grow further. All the growth prospects are exhausted. I will give you an example of Zensar Technologies which have been struggling to grow for the last 2-3 years. They have been trying to grow via acquisitions but the results were not visible.
I had purchased it in 2015-16 (Marked in the bold bracket)& immediately after that, the performance started deteriorating. I kept clinging on it for a long time & finally gave up on this. After a long hiatus, finally, the company has some cheer with its performance improvement in the March quarter of 2018.
Since the company has been trying to improve the performance will eventually improve but the question comes ‘When?’ If you continue to hold, you can make the profit but there is always the “Opportunity Cost” which you lose by foregoing the other investment opportunities.
It’s VERY IMPORTANT TO TRACK THE COMPANY YOU HAVE INVESTED OR GOING TO INVEST.
Zensar Technologies(QoQ result analysis)
3. If the key management team driving the growth has deteriorated i.e. with the past success, arrogance has taken over them or they have become over-ambitious, the downfall is imminent. Also, implies a good time to sell. Suzlon is a case to study.
4. If there are some certain conditions that the market fall is imminent, that’s the right time to exit.
Other than this, you can sell the stock if: 5. You have a better investment opportunity with you. 6. You have an immediate need for money for some personal reasons. 7. There are certain problems that have cropped up with the company & it will take some time for the company to sort that out. You can sell it for the time being & invest somewhere else while tracking the performance of the former company. Given the temporary problem, the price is expected to drop giving you an opportunity to buy again at a lower price. Well, this requires a lot of monitoring & time.
As of now, I can think of only this many circumstances. If I come across any more point to add, I will keep updating this post.
Thanks for reading my blogpost.
By,
Shekhar Yadav