Monday, June 15, 2009

Should you sell your stocks?

The stock markets have been heading upwards over the past few weeks. The prevailing optimism, slow economic revival, positive signs on the global front and high expectations from the stable government has contributed to the rally. Many investors who had seen the value of their stocks hit rock bottom face a dilemma. Should they sell them and reap a decent profit? Or should they hold on?

The volatile nature of the markets makes it difficult for investors to take the right decisions. The markets could head either way. Wouldn't it be disheartening if the markets rallied upwards, the day after you sold your stocks? What if the markets came crashing down tomorrow, depriving you of the opportunity to augment profits? The decision to sell is critical.

Here are a few pointers to help you decide if it is a good time to sell:

Company fundamentals

Investors usually set a stop-loss level and sell their stocks when the market tumbles. Do not perceive declining stock prices as an alarm to trigger a sell. Go by the company fundamentals rather than stock price movements to make the crucial sell decision.

Sell a stock if the company's performance deteriorates. Some analysts advice investors must never sell the stock of a good company if its price goes either ways significantly - up or down. However, reducing profit margins and slowing sales/earnings must be treated as a warning signal.

The sell decision can be made after considering weakening fundamentals of a company . Events like major management changes, exits of key executives or strategic changes can be triggers to sell. Do not hesitate to weed out laggards, if the company has long-term problems.

Book some profits

Investors are tempted to sell their stocks if the markets rise up. Some people adopt a safer strategy of selling only half their holdings in case the stock prices double.

Go by demand

Let the state of the economy or global issues not propel you to make a hasty sell decision. If the business has taken a nosedive due to increasing competition or falling product demand, you must consider selling it.

Balance portfolio

Investors need to reassess and rebalance their portfolios periodically. If a certain sector or stock has increased in value, it may be over-represented in your portfolio. You may have to sell a portion of it to be in sync again with your initial asset allocation.

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