Quite often, investors and friends ask me this question. It is difficult to give you a straight or satisfactory answer because it depends on so many factors. When to sell depends basically on your knowledge, understanding, experience, holding power, your risk appetite and your circumstances.
As I said before, 3 persons can buy the same share at the same price and each one can have a different result. A small trader will sell when the price went up 20%. Another will sell even at a loss because he has no holding power. A smart investor will not sell as long as the company is showing increasing profit.
However, I will try to give you some guidelines so that you can make more money. The following are reasons for selling:
- I will sell when the reason to buy or hold on the share is no longer valid. That means I will not buy the share because it does not comply with my share selection golden rule. My golden rule is the company’s latest 2 quarterly profit must be better than that of last year so that the annual result will be better than last year. Otherwise, the share price will drop. I have not seen any share price go up when the company reports reduced profit. Unless the company’s product sale is seasonal, I will start selling some as soon as I see a reduced profit. I will sell as fast as possible as soon as I see reduced profit in 2 consecutive quarters.
- I will also sell some if I have a better use of the proceeds to buy some new hot stocks. For example, currently hot stocks are CSC Steel and several other steel products makers which will benefit from Megasteel closure. That is why their prices are going up like rockets.
- I will also sell even not at the best price just to follow the down trend. I find it is better to follow the trend instead of going against it. I will stop selling if the price is falling too rapidly for no good reason. But, I will start buying back as soon as I see a trend reversal.
- As no share can go up or down indefinitely for whatever reason, I will sell some even it has not reached my target price.
- I will sell whenever there are an unusual big numbers of buyers so that I have funds to buy back at a cheaper price during price correction.
- Most people are too greedy and reluctant to sell even when the price has shot through the roof.
- There are also people always sell too early and not prepared to take some risk.
You must not forget about transaction cost whenever you sell or buy.
You must also remember to keep some really good shares for long term to be able to make more money. If you have to sell some for whatever reasons, always remember to buy them back.
Short term traders cannot be rich.
All investors must examine their track record to see how well they have been performing. They must change their method of selecting stocks to buy and sell if they cannot double their capital within every 3 years. You can double your capital in every 3 years if you can make about 24% per year, every year. If you are confident to make more than the interest rate for margin finance, you should use it to help you make more money.
If you have bought Latitude, VS and Lii Hen all of which have gained a few hundred per cent per year and sold at the right time, you could have easily doubled your capital every year.
From my observation most investors cannot overcome their emotion of fear or greed and think logically. If everybody can think logically there will not be any unvalued stock for you to buy. As a result, most people sell too early. They would feel ashamed to buy back at a higher price when the company continues to report increasing profit and miss the opportunity to become super rich.