There’s a famous maxim in the investing world that goes like this:
“Buying is easy, selling is hard.”
We can spend weeks and months analysing a company.
But when the company’s shares crash for temporary reasons, we might panic-sell in an instant due to fear, erasing all our efforts spent on doing our due diligence on a stock.
That emotionally-driven action would be detrimental to our long-term investment returns.
Here are three guidelines to help us determine rationally when to sell a particular stock.
(Hint: Selling due to a stock market crash is not one of them.)
1. When a Mistake Has Been Made
The first reason is an obvious one.
This happens when we make a mistake in the original purchase of the stock, and the company is not as favourable as originally thought to be.
To handle this situation, we must have self-control and the ability to be honest with ourselves.