Friends, whenever we choose a good company or share to invest in
we hope to get a good return from that investment
Say if you chose a good company which gave you a return of 50%,100% or 150%
The biggest question here is how will you know when is the right time to sell this share?
It's important to know the point you should sell the share at
cause its important to choose a good company but more important is to know when to exit it
In this video, we will talk about different scenarios in which you should sell off your share
I, Jagdeep Singh, Welcome you to Groww's Youtube Channel
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Let's start with today's video in which we will discuss the point in which you should sell off your share
To discuss what is the point at which you should sell, it is important to understand why you bought this share
Why did you buy this company's ownership? Every investor has his own thesis, investment criteria behind it
according to which he chooses a company
Say if he feels a particular industry is going to do well, a particular company's market share is really good here
has performed financially well in the past years and feels the company can perform well in the future as well
or he felt the management is good, with all these thoughts he might have thought to invest in a company
Say if he has allocated 20% of his portfolio to this company, it gave a return of 50% and more in a year
or two. Another investor asked him on why is he not selling his shares as he already received a 50% return
The investor said that he had a thesis in mind when he was planning on investing in this share
I had a thought regarding this company that it will perform well in the future
This company gave me a 50% return, my particular parameter or thesis are still asking me to stay in it
Now if you really feel confident about your investment thesis on the basis of which you made your investment
in that scenario, you should never look at the return and exit it
Say if you invested in a good company which gave you a return of 50% or 100% or more
You can stay invested in this for the long term until you feel that the company is performing
according to your financial parameters
If you look at any big investor, say Warren Buffet, he has the Coke and Apple share since a long time
how much ever return he has made in it, he hasn't exited it cause he feels that the company will expand further
Now you understood the importance of thesis in choosing a good company
These thesis and parameters are important when you want to exit the company
Say if you invested in a company which had a market share of 30% to 40% in the market
in the past some time you can see the market share going down for this company
and you can see its competitors are performing better now
cause of which this company has started going down
thus whenever you feel that a company's market share is going down swiftly and the company is not able to justify
the reason behind it, in that scenario you should think of exiting from the company
The second reason, you chose a company cause it sold a product which had a high demand in the market
You feel that the product quality has gone down in recent time but if you are watching its competitors
then their product quality is improving and your company's product quality is getting worse
Thus you should see product-wise as well on what are the products, its quality, its demand, its market
perception Cause it is possible that many users used to use a product at a time and had a good word of mouth
but from the time, its quality has decreased and the users are preferring other companies over this one
In this case, if the product quality is depleting and this product was a criterion while investing in this company
then in this case also you must think of exiting from this company
At last, I will talk about the company's management, as every investor feels
that the management plays a big role in a company's growth
You invested in a company seeing its strong management team, its past track record
its good corporate governance in the past and it utilized all its resources well to expand
Say you had a lot of trust in the management but you see the management has completely changed
in the past some time. Old management has been replaced with a new one, you should rethink in this case
on why this new management and why was the old management got replaced all at once?
You should think again on how much it impacts your management thesis and investment parameters
While investing how much weightage did you give to the company's management
If you had actually placed a high weightage here and the management has been completely replaced
You should definitely think of exiting in such a scenario
After investment thesis, lets talk about Portfolio Rebalancing
It has two parameters under which you can think of selling off your shares
The first parameter, say if you invested in a stock which gave you a really good return
You invested Rs 100 in 10 different shares and 1 stock gave you a return from Rs 10 to Rs 100
In that case, in your portfolio, this one stock will have a high overall weightage
Many people try to keep their portfolio diversified
and they want their risk in one share to not increase by much proportionally
If you are thinking of rebalancing, say if one stock gave you very heavy return
your portfolio is skewing towards that share a lot, in that case, you can think of selling off that share
so that you can rebalance your portfolio. I am asking you to not think of selling a share on the basis of returns
Here the reason is sock diversification in your portfolio
If one stock has given a really good return and has performed well in the past sometime
Now if you see the stock weightage getting higher in your portfolio as the stock performed very well
In order to rebalance your portfolio again, you can think of rebalancing your portfolio
The second important parameter is related to your age, I spoke to you about a rule on age in the last video
If you subtract 100 from your age, the no. left should be your exposure to the equity in your portfolio
Say if you are 30 years then 100 minus 30 is 70, 70% exposure should be on equity, 30% on debt
If an investor created a portfolio and he had allocated 70:30 allocation according to his age
30% on Debt and 70% on Equity. Now he is 50 years old
according to this rule, he should reduce the allocation in Equity and the increase in Debt
cause your risk-taking appetite decreases with age thus if you ever want to rebalance your overall portfolio
and reduce your stock exposure, you may think of selling off your shares in a company
Now let's talk about the last parameter on why you should think of selling a stock
If you have free money for which you want a return, you have invested this amount in a good company
This stock increases by 10% to 20% which is a good no.
If you take off your money from that stock and keep it idle, this money won't make you any money in the future
till the time you invest it further. We derive our Third Criteria from here!
Say if you invested in a share which was giving you a CAGR return of 8%
but now you feel that you have found a better company
which can give you a return of 10% to 15%, in this scenario
you can take your money off from the other stock and invest here
You should be double sure that this asset would give you a better return than the share you invested in before
If you have a better opportunity, you feel a new asset can make you more profit then you should go-ahead
At last, I would like to give you a small tip
These parameters on when you should think of selling off a share
Other than the mentioned parameters, you should check at the company's quarterly results, annual performance
You should read its Profit & Loss statement, its objectives. If you see any deviation from these
You should do a deeper analysis and think on whether you want to take your money out of here
and invest somewhere better
This video was completely on educational purposes.
We always ask you to invest on the basis of your thesis, risk-taking capacity and your parameters
Choose a good company and invest for long term
But if you see any problems within your invested company, you should exit at the right time
cause if investing is important, it is more important to exit from a bad share
If you liked our today's video, press like!
Comment and tell us if you know of any other parameter
on the basis of which one should think of exiting a company
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