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When it comes to investing, the decision of when to buy a stock can sometimes be easier than knowing when is the appropriate time to sell a stock.
Buy recommendations are prevalent and stem from a wide variety of sources, including investment newsletters, analysts, stockbrokers and investment managers.
However, few offer much advice on when it is best to sell a stock. Here are five tips on when it might be time to sell. When initially buying a stock, astute investors establish a price target , or at least a range in which they would consider selling the stock.
Each stock purchase should also include an analysis on what the stock is worth, and the current price should ideally be at a substantial discount to this estimated value. It is difficult for even the most seasoned investor to come up with a single price target. Instead, a range is more realistic , as is deciding to sell off the position as it is rising, in order to lock in gains. Along with keeping track of a firm's stock price after establishing a price target, monitoring the performance of the underlying business is important.
A key reason to sell is if the business fundamentals decline. In an ideal world, an investor will realize a deterioration in sales, profit margins , cash flow or other key operating fundamentals before the stock price starts to decline.
More experienced analysts may read deep into the financial statements , such as filing footnotes that other investors are more likely to miss. Fraud is one of the more serious fundamental flaws. Investors who were early to spot financial fraud from the likes of WorldCom , Enron and Tyco were able to save substantial sums as the share prices of these respective firms plummeted.
Opportunity cost is a benefit that could have been obtained by going with an alternative. Before owning a stock, always compare it with the potential gains that could be obtained by owning another stock. If that alternative is better, then it makes sense to sell the current position and buy the other. Remember, time in the market is more powerful than timing the market.
And, no matter what anyone says, fees matter. In fact, fees have been shown to be the number one factor that determines your investment return. At Define Financial, we are absolutely obsessed with fees. Using fees to determine if you should sell stocks now. Determining if you should sell stocks now depends on how willing you are to give up healthy, long-term stock market returns.
Trying to time the market means giving up what has historically been a pretty good deal. Trying to time the market also involves a lot more risk. Stocks have been going up in value for a very long time. Check out this chart! Can you spot the trend? Are you able to pinpoint when you should sell stocks? On a long enough timeline, you would miss out on massive gains if you sold at the wrong time. Anyone squinting at the chart provided will notice that there are quite a few bumps along the road.
This is a reason why you want to diversify your portfolio. Looking at this, do you think that it could make sense to sell your stocks and bonds? After Netflix released its third-quarter earnings on Oct.
Although Netflix had been slowed down by production delays related to COVID, it seems to be back on track and expecting a roll-out of content like never before in Q4. Should you invest in Netflix, proceed with caution or hit the brakes? Cynthia Measom contributed to the reporting for this article. This article originally appeared on GOBankingRates. Kelli Francis 5 hrs ago.
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