so as always before we get into it give this video a big thumbs up so i have a question for you
what is the right time to sell a stock this is a question that has had many investors bewildered
over the years however to answer this question you must first ask yourself are you an investor
or a speculator if you aren't sure let me tell you the difference between the two a speculator
is a person who is only concerned with one thing the change in the price of a stock speculators are
people who like to place bets on which way a stock will likely move if the stock does not respond the
way they anticipate they have no other option but to cut their losses and move on this is one of the
reasons why you will observe that speculators have a very short time horizon the most extreme
form of speculation is done by a day trader who buys and sells stocks multiple times a day
an investor on the other hand is someone who buys a stock not because it has recently shown
positive price signals instead he or she likes the underlying business that the company is
operating in the investor does thorough research and analysis of the industry and its competitors
the investor feels confident of the management expertise of the company and foresees good future
growth potential therefore an investor usually has a long-term investment horizon and is not
too concerned with the temporary price dips and fluctuations that his investment might experience
for example an investor who bought a thousand shares of amazon stock in january 2000 when
it was trading at 63 dollars would not be too stressed when it crashed to 15 a few months later
the amazon investor who saw the long-term potential of the company
and stuck with his investment would be over 300 000 richer today in today's episode we'll
be looking into the fundamental investor instead of the short-term market speculator
even though warren buffett describes an ideal investment as one that you can hold on to forever
this is not often that realistic sometimes selling off the stock can be the best or the only option
for you however you do not want to find yourself in a situation where you sold off a stock too
early or too late just like there are rules for buying stock you also need to follow some rules
for selling your stock at the right time and at the right value so below are a few conditions in
which selling a stock makes the most sense number one the fundamentals have changed for the business
sometimes things don't work out as well as you anticipate yes you did your homework and
all research and analysis indicated it is a good company to invest in but many unforeseen things
can happen that will make an investment lose its charm and value maybe there was a change in
management and a change in vision or maybe there were changes in the regulatory landscape which
slowed down the growth of the company and there could be a thousand other reasons like this maybe
you invested in an industry which has suddenly gotten outdated due to some new disruptive
technology introduced in the market for instance there's a chance that in the next 50 years or so
the gasoline automobile industry will get completely outdated as electric vehicles become
more widely used and become a permanent household feature maybe the gasoline cars will instead
become more of a collector's item while electric cars become the go-to vehicle for daily usage
several indicators can tip you off regarding the decline of a company's performance
usually the price of the stock starts to head south and you get the feeling that
it's not going to stop falling anytime soon abnormal price movement is usually one of the
earliest signs of something bad happening to a company this is later validated once
a company's annual information is made available and you see that the financials have taken a hit
financial ratios analysis can help you determine the profitability and financial position of your
company some of the ratios that can be helpful in your analysis are dividend yield price to
earnings earnings per share dividend payout debt to equity current ratio etc if you observe that
the fundamentals of your company have weakened that is a good enough indicator that you should
think of selling your stock the number two is when companies eliminate or reduce their dividends
although this is in some ways connected to the first condition that i just told you about
i wanted to highlight it separately because it's that important when a company suddenly announced
that they're going to pay less dividends this quarter we're not going to pay you any dividend
at all this should be a red flag to investigate the financial performance of the company usually
a company will do this if they have consistently not performed well in the past few quarters
and this is a good time to re-evaluate your investment and maybe sell it off
you must however be completely thorough with your research as to why the company has suddenly
stopped paying dividends maybe the company is just looking to expand its production facilities
and will be reinvesting the dividends or maybe it's going to invest in research and development
you don't really have anything to worry about if it's done for those reasons that's because
it will add to the long-term value of the company and it also shows that the management is eyeing
growth opportunities if you are the sort of investor who wants consistent dividend income
then maybe the time has come to sell it off anyway and buy a stock with more guaranteed income
the third reason for selling your stock is when the company reaches its intrinsic value
since you're a fundamental and a value investor this means that you have probably bought the
stock at a discount to its intrinsic value this is the number one rule of value investing only
invest in something which is priced below what it is actually worth in the market
it will guarantee you a safety margin and an adequate return so if you've bought a stock
at a discounted price then the right time for you to sell it is when it reaches its intrinsic value
exiting such an investment is always tricky you might feel that holding on to that stock can be
better for you and to be honest it is a judgment call you could be right and the
company continues to do well and reinvest your capital at a higher rate of return
you can also be fatally wrong and the company makes a few wrong decisions and finds itself
in a financial mess i would recommend you exit the stock at its intrinsic value or a bit higher
than it for instance if you purchased a stock worth a hundred dollars at a discounted price of
fifty dollars and in a year it returns to the one hundred dollar value you should consider selling
it that's because you've already made a 100 return on it there's no need to be greedy so take a look
at other opportunities which you're selling at a discount at the time and invest in those
the fourth circumstance in which selling stock can be justified is when you have a better opportunity
under normal circumstances i would not advise you to rebalance your portfolio so often however if
you're presented with an opportunity which you are very sure of and will make you big money
then maybe selling your stock to invest more into that opportunity can be justified
as fundamental and great as those conditions are some other circumstances or strategies that you
need to be aware of while selling your stocks are number one avoid or exit stocks that attract
a lot of media hype i've been a victim of this circumstance a few years ago one of the stocks
in my emerging frontier market portfolio attracted so much attention that even if you left a monkey
on the trading floor with only one stock to trade in he would make you millions the stock climbed so
much that i felt that it would keep on climbing little did i know the stock would crash after
a few months liquidity would dry up and i would not be able to exit it in time to avoid the crash
nevertheless it was a lesson learned the hard way number two be mindful of trading too frequently
rebalancing your portfolio isn't a free endeavor obviously you must pay certain brokerage costs and
commissions each time you buy or sell a stock you might not even realize it but those could
stack up and hurt your invested capital a few educated and researched trades will beat a hundred
random speculative trades any day of the week so choose your investments wisely in the first place
number three don't sell off all your holdings this strategy is similar to the average buying strategy
just like value investors would advise you to slowly build up your investment portfolio
by averaging the price of your stock the same advice applies when selling stocks
don't dump all your profitable stock all at once you can sell some of it gradually every
few weeks or so and reinvest the profits in other opportunities that way you will not miss out too
much on profit if your stock keeps on rising a few more weeks after reaching its intrinsic value
also if the stock falls after that you will experience the loss on a reduced invested amount
so that will mean minimal loss on your end those were some additional circumstances that i wanted
you to think about timing the sale of a stock is an art rather than an exact science it comes
with years of investment experience and requires you to control your emotions and your behavior
most of the investors either sell too quickly or wait until it's way too late you need to learn
the art of selling at the right time and the right time is usually somewhere along the point
where your stock reaches its target price or intrinsic value whatever your reason is for
selling i hope it's a good one hopefully you found value and you're able to take
a few lessons from this video and implement them in your own investment practice as well
so thank you guys so much for watching and please go ahead and give this video a like
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more with that said you guys have a great day and i'll see you all in the next one