Over the past few weeks, thousands of people have become interested in trading on the stock market for the first time in their lives. While it can be very exciting to start trading on your own, it can also be financially risky and frustrating. If you don’t understand the nuances of the stock market, you could end up losing a significant amount of capital. As such, today we’re going to review one of the most basic, but essential, aspects to trading stocks successfully, namely: when you should sell a stock. To that end, here are three good reasons to offload a stock:
You Can’t Give it Proper Attention
At the end of the day, most retail investors don’t have the time or resources needed to follow the performance of hundreds of different stocks. Indeed, the best stock traders take time to learn key facts about companies and industries in which they invest. However, if you don’t have the time needed to study a stock closely, then it may be a wise decision to offload it now. Trading blindly is akin to rolling the dice at a casino. And just like a game of craps, you’re unlikely to win if you don’t understand what’s going on.
The Stock is Overperforming its Value
As the events of the past few weeks have shown, a company’s fundamentals are not always tied to its stock performance. Some companies are not set up for long-term success, and yet, for one reason or another, experience positive gains on the stock market. If you own a stock that has outstripped the value of the actual company, look to sell it when you can. Eventually, artificially inflated stocks come back down to earth. Of course, it’s not always easy to tell from a distance why a stock is performing so well. This underscores the importance of research.
The Stock is Unlikely to Rebound
Buy low, sell high. Easy enough, right? Well, the truth is that sometimes it’s better for investors to cut their losses and offload bad stocks before they get worse. Hanging onto a bad stock because you think it will bounce back can end up costing you even more money in the long run. Avoid the sunk-cost fallacy and learn to accept losses quickly and with minimal fuss. Even the most effective traders lose money from time to time. The key is to manage your money well and sell stocks that don’t have growth potential.
Retail investors on the stock market have the opportunity to invest in a wide range of companies. They can support businesses that manufacture complex equipment like safety butterfly needles or they can invest in their favorite entertainment companies. Regardless, selling stock is a big decision that you should consider carefully before you pull the trigger. Keep these tips in mind the next time you’re unsure about offloading a stock –– you’ll be glad you did!