How Do Investors Know When To Sell Stocks?

Choose potential

Better buy than sell well.

"10 stocks that must not be missed."

"5 stocks that are most worth holding in the next 10 years."

Investors often see such investment proposals.

These investment proposals are all about buying stocks.

Today's investment world tends to pay more attention to buying rather than selling stocks.

Obviously, it is very important to know which stocks to buy.

However, the author believes that when to sell stocks is one of the biggest challenges for investors.

The weakness of human nature determines that most investors will sell good performing stocks to lock in profits and avoid evaporation of book profits.

What often happens is that good stocks continue to perform well after we sell.

On the other hand, most investors will continue to hold poorly performing stocks to avoid losses and avoid making wrong investment decisions.

We summed up the principles of stock selling to reduce the impact of human nature on selling decisions.

If you follow the following four principles, it is likely to improve your investment results.

When the following situations happen, selling stocks is a good idea.

Sometimes the stock market overreact to short-term events, which gives you the opportunity to get good investment opportunities.

Almost every good company has been seriously underestimated by the market.

Similarly, almost every good company has been seriously overestimated by the market, and its share price is far beyond its actual value. This situation occurs when challengers are too optimistic about the company's prospects.

If you happen to have such a stock that is seriously overvalued by the market, you should consider reducing your position on that stock to achieve some profit.

For example, Shanghai automobile (600104), after the blowout of the auto industry in 2003, most investors believe that the auto industry will continue to grow at a high speed in 2004. Meanwhile, the share price of Shanghai automobile is also optimistic on the basis of the doubling of the stock price in 2003. The final result is that the domestic automobile industry is only growing at a low speed in 2004, and the profit margin has dropped sharply, so the share price of Shanghai automobile has been cut off in 2004.

2. company fundamentals deteriorate

Once you notice that the fundamentals of the company are deteriorating, you may want to sell the stock.

By analyzing the company's balance sheet, you can see if the fundamentals of the company are deteriorating.

Rising debt levels, rising inventories and accounts receivable are rising faster than incomes. These are the 3 commonly used signals that determine the company's efficiency deteriorating.

Such as Nankai Gode (000537), the main revenue decreased from 222 million yuan at the end of 2002 to 98 million yuan at the end of 2003, while accounts receivable rose from 27 million 680 thousand yuan at the end of 2002 to 29 million 580 thousand yuan at the end of 2003. This shows that the fundamentals of the company have already deteriorated seriously.

If investors continue to hold the stock, they may suffer more losses.

Here are some other preliminary signals that the company's fundamentals are starting to deteriorate.

* reduced return on shareholders' equity

* declining profit margins

* market share contraction

* unwise mergers and acquisitions

* unexpected management changes

3. stocks bought by mistake

No matter how much energy you spend on stock research, you may make mistakes.

Even great investors like Buffett and Peter Lynch have made investment mistakes.

When buying a stock, you may encounter unexpected situations, such as problematic related pactions, altered accounting methods and declining competitive advantages.

If you find similar problems after buying this stock, you should consider selling, even if selling means loss.

A wise stop loss is better than finding a better investment opportunity to continue to hold a stock that is doomed to perform poorly.

For example, Shida group (600734), since 2000, because of the increasing competition in the computer industry, the market competitiveness of the company's products has declined, and the share price has dropped more than 80% from 2000 to now, far exceeding the average market decline.

4. implementing rebalancing of portfolios

During the bull market, as almost all stocks went up, investors often used to ignore the fundamentals of the company.

Usually, only when the bear market comes, can investors recognize the fact that some stocks can rise even in bear markets.

Companies with strong competitiveness can withstand the downward cycle of the economy, but companies that are not competitive will drop more when the market goes bad.

For example, Tsingtao Brewery (600600), as the first brand in China's beer industry, has lost half of the Shanghai Composite Index since mid 2001, and its stock price has hardly declined.

That's why you should always guarantee that you can replace low quality stocks with high quality stocks in your portfolio.

When a stock rises to a large proportion of your portfolio, you may consider selling part of the stock to make a profit.

If a stock has only accounted for 20% of your portfolio in the past, but it has doubled in the past period of time, and the price of other stocks in your portfolio has changed little, then the stock now accounts for nearly 40% of your portfolio.

In this case, the performance of your current portfolio is too dependent on one stock. In this case, you should consider selling part of the stock to rebalance the portfolio.