These 5 tips will help you choose the best time to sell your stocks

When it comes to investing, deciding when to buy a stock is sometimes easier than knowing when to sell it.

Buy recommendations are common and come from a variety of sources, including investment newsletters, analysts, stock brokersand investment managers. However, few people offer much advice on when is the best time to sell stocks. Here are five tips on when it’s time to sell.

1. It hits your target price

When initially buying stocks, astute investors establish a Target priceor at least the range in which they would consider selling the stock. Every stock purchase should also include an analysis of the stock’s value and value current price ideally should be at a significant discount to this appraised value. For example, selling off a stock when the price doubles is a worthy goal and means that the investor thinks so unappreciated by 50%.

It is difficult for even the most experienced investor to determine a single target price. In return the range is more realisticas decides to sell the position as it rises to lock in a profit.

2. Deterioration of the foundations

Along with tracking the firm’s stock price after setting a target price, it is important to monitor the performance of the core business. The main reason for selling is business foundations decline. In an ideal world, the investor will realize the deterioration of sales, profit rates, cash flowor other underlying operating fundamentals before the stock price begins to decline. More experienced analysts can read deeply into financial statementssuch as providing footnotes that other investors are likely to miss.

Fraud is one of the more serious fundamental flaws. Investors who spot financial fraud early on from the likes WorldCom, Enronand Tyco were able to save significant amounts because share prices of these respective firms fell sharply.

3. A better opportunity appears

Opportunity cost are the potential benefits that an investor loses by choosing one alternative over another. Before buying a stock, always compare it to the potential returns you can get from owning another stock. If this alternative is better, then it makes sense to sell the current position and buy another one.

Determining opportunity cost is extremely difficult, but it can include investing in a competitor if it has equally compelling growth prospects and trades at a lower price. ratingfor example lower price-profit multiple.

4. After the merger

Average absorption the premium, or price at which the company is bought out, usually ranges from 20 to 40%. If an investor is lucky enough to own stocks that end up being purchased at a significant premium, the best course of action may be to sell them. Continued ownership of the shares after the merger may have advantages, for example, if the competitive position of the combined companies is significantly improved.

However, mergers have a terrible track record of success. In addition, the deal may take many months to complete. Therefore, from an opportunity cost perspective, it may be worthwhile to find alternative investments opportunity with better growth potential.

5. After bankruptcy

In the vast majority of cases, a bankrupt company becomes worthless shareholders. However, for tax purposes it is important to sell or realize the loss so that it can be offset in the future capital gains and a small percentage of regular income each year.

Selling stocks right after bankruptcy often results in big losses, but you can still get back a few cents on the dollar.

Result

Deciding to sell stocks is truly a combination of art and science. When deciding whether a stock’s rally is over or likely to continue, a number of considerations such as those above must be taken into account. One common sense strategy is to sell when the stock is rising to lock in profits over time and sell at a loss to avoid going out of control.