Whether you are a new investor or an experienced trader, one question is commonly asked by all . How to know when should we buy and sell stocks. Well, here we are with some suggestions that can help you know when is the right time to buy and sell stocks.
Right time to SELL a stock:
1) Market cap:
Simply put, Market cap—or market capitalization—refers to the total value of all of a company’s shares or stock. Market capitalisation is one of the robust indicators of whether the stock is over or undervalued.
When the market capitalisation of the leader gets closer to an entire market size of the sector, it sends a definite signal of overvaluation. So, sell the stock.
2) Change in the origin:
Sometimes, stocks need immediate attention because of a change in the original thesis under which they had been purchased as industries go through significant changes from time to time. Like, Typewrites got substituted by computers totally.
As innovation takes place, existing products become irrelevant. An investor should press the sell button as the original thesis changes completely.
3) Favourable future predictions:
You must have probably heard the saying that the market is a ‘forward-looking mechanism’ or ‘discounting mechanism’. In essence, the phrase simply means that the market as a whole is more interested in what the future holds than in what happened in the past, or even what is happening right now.
Recently, this was the case with IT stocks wherein, a multi-year bull-run happened as the trigger point was the outbreak of COVID, which brought about rapid change and we entered into a digital world; however, once this rosy future was discounted, the prices came to a grinding halt and we witnessed a steep fall.
Right time to NOT SELL a stock:
1) Low Stock Price:
Many times, we buy a stock only to see it go down by our purchase price; fear kicks in and we press a sell button. However, one should understand that in the short run, the market is just a barometer of investor sentiment and this might impact the stock price in the short run.
But, as long as the company does nothing wrong on the fundamental side, one should not sell a stock just because there is a decline in the stock price
2) Quarterly Results:
Some stocks may face challenges due to adverse economic conditions or events like COVID and this may impact their earnings for a quarter or two but that doesn’t necessarily mean that the company is in a bad position.
These are some parameters one can look for. If you want personal advice, feel free to contact us at 9460825477