Successful stock investing requires discipline, and that applies to both buying and selling. A selling discipline is important, as it prevents hold and sell decisions from being driven by subjective criteria or emotions, rather than facts.
There's nothing wrong with holding shares for 10 years or more, if they're the stock of an exceptionally well-run company. In fact, the greatest investors of all time have made money by being in stocks for the long term. But even if you're a long-term investor following a buy-and-hold strategy, you still have to sell sometimes, in order to make the best of your investments. So selling discipline is important for any investor.
Perhaps the high volatility in the stock market since the past few months is making you say, "Why don't I sell it all. I'll wait until things calm down." But you should not let fear guide your investment decisions. Instead, look at these three rules to help you decide if the time is right.
When is it time to sell?
There are three simple rules to follow. The first rule to determine whether or not to sell a stock is: "Sell if a better option is available." Let's take a closer look at what this implies. First of all, this rule of selling implies that your investment decision should not be made in a vacuum. Every stock holding must be viewed as one among various available alternatives. For example, a positive outlook for a stock in itself is not sufficient reason to keep holding, if other stocks are available in the market that have even better prospects.
It's important to not become emotionally attached to a particular stock, but instead objectively analyse your reasons for holding every stock in your portfolio. If there's a better option available, go for it. Ultimately, your reason for having a stock is to earn money.
Currently, the Indian markets are in doldrums and nobody is talking of stocks or investments. You may think justifiably so, as the markets are headed in no direction. Is it not exactly the opposite of the exuberant times we were witnessing a few months back. Conversely, bottoms are made in turbulent times.
It is difficult, if not impossible, to say when the markets will halt their southward journey and change direction for the better. Who knows, we might have already hit the bottom and the markets may soon return back to their upward trajectory.
My empirical observation and research have proved it that wealth making in the market has more to do with discipline and the power of time to compound growth than being smart at stock picking and timing the markets just right. To help you in your quest to make wealth in our markets, I suggest you follow the 10 golden rules of markets that will virtually ensure reasonable, steady wealth appreciation.
