“Buy low, Sell High” Yeah, it’s sound advice. Or is it?
Some people would admit that this investment gyaan is much easier to quote than to practice in real life. Moreover, when to sell a winning stock is perhaps more important than knowing when to buy. Then, how do we know it’s time?
Success in the stock market draws a crowd like a celebrity spotted out shopping. When a stock you own goes up, you wonder if you should hold on to it like your parents held on to theirs until the day they passed it on to you to fund your marriage? Of course, you want to see how much higher it can go. You worked so hard to find the right stock that’s paying off. Why would you get rid of it?
Let’s talk about a hypothetical company’s stock that is a huge milk producer. You did your research and bought this stock at a reasonable price. The milk business is booming. The management has lofty expectations of future demand and expanding revenues. After 2 years, the position is giving you as much as 200% gains. You are euphoric!
When a stock becomes a big winner like the milk company here, fighting your emotions becomes a big challenge. (You have been into this similar situation. Haven’t you?) . What should you do then? The answer is going to be somewhat boring: It depends.
During such times, don't give in to temptation or act irrationally. Before closing a big winner, ask yourself these three questions:
Do your research. Going by Warren Buffett’s advice, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” Remember, selling stocks is fine, if you do it for the right reasons.
So, keep asking yourself the above questions whenever you are confused. Stick to your target and investment goals. Taking emotion out of the decision-making process can help you avoid selling a big winner prematurely or too late. You need to choose mind over money!
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