When you buy a share, you normally buy to sell the share at a higher price, thus making a profit. However in most cases you may not have a clear target price. This means you need to have a matrix of when to sell a particular share -either time based, p/e based, or price based.

Let us see why you should sell a share:

1. You do not know why you bought it: If you do not maintain an investment diary, the chances are you forgot why you bought a particular share. Look at it afresh. Will you buy it TODAY? at that price? If yes keep it. If no, sell it.

2. It has reached YOUR target: FMCG companies have gone up as much as 60% in the past one year. Many Mncs are at the top of their valuation because of the SEBI rule on listing requirement. If they have met YOUR target sell.

3. Change in the companies business: If you had bought a company’s share for a particular business, and that business has been sold off – you have to get rid of that share.

4. Change in YOUR portfolio: You have 15 companies in your portfolio. Of this 5 are from one group..if you want to add one more company from that group, it may impact your balance. For e.g. to add Shanti Gears to my portfolio I had to sell Coromandel International or my exposure to Murugappa group was getting too high. Similarly if there is too much concentration of one industry (for me Madras Cement and Kajaria Ceramics are one industry at a broad level).

5. When you do not trust the management any longer: Some companies keep talking but do not deliver value. Crest Animation is top of mind recall, of course there are others too. Look at Jupiter Bio, GMR, …some of the other names with whom I do business so will not mention (oops vested interest).

6. When you do not trust the management (part 2): when you know as a vendor, friend, employee what is happening, be careful. We tend to judge WRONGLY when we are too close to the subject being judged. We are either too lenient or too harsh. YOU have to judge it with a balance. There is a huge company in the sensex for whom i have no respect. Market has tons of respect. I clearly respect the market – and will hold the shares – even though I keep pruning the size.

7. Better opportunities elsewhere: Obviously all of us have a limited amount of resources, so it you think ‘A’ share will do better than ‘B’ share, you have to sell B and buy A. The sooner you forget what you did, the better, because if A falls and B goes up you will bite yourself 🙂

8. You turned Jain! – suddenly you question yourself – ‘am i aiding in the spread of misery in the world and turn philosophical in your investing. I know many friends who will not touch a McDowell, ITC, etc. They are just dead against alcohol and tobacco. No value judgements, but yes this could be a reason to sell.

9. You need money for a particular goal: buying a house, buying a car, making a foreign trip, daughter’s marriage……of course you HAVE to sell….

more to follow? not sure

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  1. And if still confused, sell partially. This will help to reduce overall cost & provide cushion. Best suited for stocks that have already given 100%+ returns. Hold the rest till infinity if you will.

  2. Loved this one.. “The sooner you forget what you did, the better, because if A falls and B goes up you will bite yourself “

  3. if only 10 out of 100 investors follow this, it will be a different picture of investments for retail investors, but then we live in a world where we will not walk for 30 minutes a day but will spend an hour at least watching experts spraying BULLSHIT on us & calling it the GOMUTRA (Cow urine) on CNBC & Other business channels.

    Even god will not help you because if you are watching CNBC @ 11 in the night you have already been blessed with more wealth than 95% of indians, how much more do u expect……………………..

  4. For Point No :5 , if promoters are based out of Hyderabad, dont buy at all:)..there is a reason why Hyderabad is referred to as “Dabbu Dabbu Dabbu”

  5. About point 6,
    “There is a huge company in the sensex for whom i have no respect. Market has tons of respect.”

    Is it the second largest IT company, on the verge of slipping to 3rd?

  6. I have never bought a share with any particular target value in mind. Normally it follows a routine of identifying a company from a sector I understand about, then stalking the stock for value. This can sometimes be a wait of years. When I see a price worth investment, I buy for long term holding. Sold only when some of the above negatives appear.
    I have always sold in euphoria and bought aggressively in dire situations. (Gulf war / 2008 debacle etc)

    Why sell a stock when it goes up? You normally are not desciplined enough to buy it back when. I feel one should look at PE multiple of the stock for sell / buy decisions. Same applies to mutual funds. Look for sensex PE for selling clues of mutual fund units.

    If there is no better use, it is best to let your funds lie in good pedigree stocks.

    That said, there is always some weak moment when I end up buying something based on news. These end up in loss.

    Regards

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