Hello friends, in today’s article we see when to sell stocks from chapter 6 of the common stocks and uncommon profits book. This chapter helps you to understand the selling of outstanding company stocks. The most important question is: when to sell stocks? so let’s see their merit and demerit of selling stocks.
When to sell stocks:
The author says ” if you are selling stocks, then we have an infinite reason for that for example, selling stocks for child education, starting own business and buying own house.”
This above all reason is out of this book. The author is only focusing on those reasons that have only one purpose making maximum profits by selling stocks.
If you are buying stocks on the basis of the previous chapter. Then you have only three reasons for selling stocks.
1 ) The mistake has been made in the Original purchase time:
- You have made the mistake while buying stocks that are known from the facts of the company. Now this time the prospect of the company is not good as before buying time. So in this situation, you have to control your emotion.
- You have to remember this, ” big investors also do big mistakes”, so sell stocks as quickly as.
- don’t hold that stocks for the long term, while listening to your ego. In this situation say no to that stocks and don’t run from accepting mistakes. so most of the investors lose their money while listening to their ego and holding that stocks. (When to sell stocks)
- In this situation, you have two types of losing
- 1) the more you hold, the more you lose: Instead of that sell these stocks and buying the better stocks then these stocks hold for the long term so this stock’s profit is more than the previous stocks we hold for the long term.
- 2) Profits have also gone: If you hold those stocks then you lose the profit of better stocks also.
- If you really want a 100% gain on the investment of your lifetime saving, over a period of the year, then don’t think of a 10% loss or 5% gain. don’t lose energy while thinking of that loss and gain.
- Review your mistake carefully, learn from that mistake, and go forward.
- In my opinion, Those investors buy the stocks, while analyzing them properly, and after some time those stocks go bad. They going bad they have the fact of that happening and show the reason for that happening.
- But investors never believe in that fact, because they are very much attached to that stock like attached to a girlfriend. (When to sell stocks)
- So Those are a trader, these people are not attached to stocks whatever stocks. they only put the Stop Loss option. If they had made a mistake, then they don’t lose lots of money because of the stop loss option and they play other trades. I am not saying to become a trader and put the stock loose. I am saying that taking the quality from traders is detachment from stocks. and learn this skill of detachment.
2) If the company no longer qualifies in regards to the 15 points.
- This situation has two reasons for this cause of selling stocks
A) Determination of Management:
- Management of the company is long after time getting success. And they are sufficient with that success and after that, they don’t work like before they do to got success.
- The new management of the company does not believe in the old management policy. The Old management policy helped to get the success of the company. (When to sell stocks)
- In this situation, you have to sell stocks as quickly as, whatever the general market outlook. If the market is bullish or bearish what is the capital gain TAX?
B) Company no longer has the prospects of new market and new products:
- If the above point is taken, then that is why the growth potential of the company decreases,s and then the stock price is also decreased.
- So in this situation, you can sell these stocks slowly, but you have to consider, the time of selling stocks comes.
- Stocks can be sold at more leisure than management deterioration, but the time to sell has come.
3) Switching to more attractive company stocks:
- If an investor is very much sure about other stocks are better than these stocks in growth prospects.
- then after that, you can switch whatever capital gain tax is applicable while selling these stocks. you can handsomely switch to better stocks.
- So this that not mean switching each and every day and becoming a trader.
Above these three reasons from the author, the author gives another reason for selling stocks according to the financial institute, consider to sell stocks and their thought and the authors thought on their thinking.
so let’s see financial community’s reason for selling stocks is good or bad
Reasons the financial community gives for selling stocks:
1) General Market decline is on the horizon:
- The general market forecast is only a guess, you have to find out the real problem in the company and get the knowledge that does not depend on a guess. (When to sell stocks)
- If you sell stocks and the bear market does not come, then you got a loss and when investors buy stocks and capital gain tax is also applied. this looks like pure stupidity.
2) Outstanding stock has become overpriced:
- Overpriced means the P/E ratio of the company is more than the investor thinks this range is a good P/E ratio. This P/E ratio is more multiple than the P/E ratio, which we are considering is good. This can get while considering with other company.
- No one tells you the good price of the P/E ratio.
- In any common think good stocks of the company will sell and should sell at a higher P/E multiple.
- The author says, ” if you understand the stocks is go high as compared to its a fundamental value and 35% can fall down but have a good prospect of the company. then You have to maintain the position in that stock and not sell at all. (When to sell stocks)
3) Most ridiculous of all is that Stocks has had a huge advance:
- This stock’s potential is gone and buying the new stocks and saying these stocks do not go high.
- The author explains with examples, ” Suppose you have the last day of your college life. Everyone asks you to give them 10X of their first-year earnings.
- instead of that, they give you 25% of his every year earnings for the rest of his life. so you don’t have that much money to give each and every classmate in your class.
- You can give only three classmates. In this situation you can’t see who your friends are, you directly see which student in the class is clever and those got big earnings in the coming future year.
- You choose three people, and after 10 years, one of your classmates, get outstanding success. He gets promotion on promotion and gets the top executive post in his company.
- So the author says, tell me in this situation, you can sell me a contract of those friends that got great success,
- because only one reason is that they get the 600% return on your investment and buy those classmate contract that has the same earnings before 10 years and after also.
- You think like this, a classmate does not develop and has the ability to develop. this is like the above third reason for the financial community. (When to sell stocks)
- Now you say, a college classmate and company stocks are both different things.
- the author says, yes one big difference is, our outstanding classmate gets possible death early is not but, he will die one day, definitely.
- After his death, we don’t get 25% of his earnings.
- But a company doesn’t have a lifespan whatever death of the founder has happened, the company is still running, generation after generation.
- Those quality and management policy is the same and they are hiring new quality management.
- For this the author says, this whole chapter in one is
“If the job has been correctly done when stock is purchased, the time to sell it – Almost Never..”
This is all about when to sell stocks from chapter 6 of common stocks and uncommon profits book
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