If we talk about an investment mistake, it is inevitable that investors don’t know how to sell it. This can be either forget to sell or sell in the wrong time or have a greed for more money. For example, intend to sell at the price of 10 baht, but when the price goes then change the mind because think that the price will go up more than that. If it goes as expected, nothing will happen. But if the price declines, the target may fail.
Joseph Kennedy, father of former President John F. Kennedy, investor in the Wall Street said that “Investors who fail often hope to sell their stocks when the price goes up to the peak. While successful investors will sell stocks when stock prices are running up. "
That means if you sell the stock at the right price and the right time. Investors will receive return on investment and reduce the likelihood of loss. And important factors that investors should consider when selling stocks are;
Get 3 Lose 1
William J. O'Neil), a former marketer who has turned into one of the most successful investor in the world has a "stock sale" rule that requires a 3 to 1 ratio between Take Profit and Stop Loss.
That is, if the profit is 20% - 50%, then sell and make a profit. If the stock price drops by 7% - 8%, then sell to stop the loss immediately. Assume that if the investor chooses the stock to be profitable at 20% - 50% for 3 - 4 times, it means profit is almost 100% or more. The same as, if there is a mistake, then cut the loss quickly to minimize the damage.
For example, buy ABC stock at 8 baht and set a target that if profit is 20% or price goes up to 9.60 baht, will sell to make a profit. If the price does not go up as expected or the stock price is down 7% or down to 7.44 baht, then will cut loss.
2.Bear Market, don’t be greedy
In Bear Market, the stock market continued to decline. As a result, the profitability will not be high. At the same time, there are more chance to lose, so you need to reduce profit targets, such as if the profit is 10% - 15% will sell immediately. However, if thing goes wrong then will sell to cut loss when the share price fell 3%.
For example, buy ABC stock at 8 baht, aiming for a 10% profit or a raise to 8.80 baht will sell to take profit. But if it doesn’t go like expected, for example,the stock price has dropped 3% or has fallen to 7.76 baht, will sell to cut loss.
3.Sell immediately after reach target
“Sell when price reaches the target” golden rule of the investors. When a share price has entered the target price range, it should be sold.
The target price is the highest price that an analyst expects a company's stock to reach within the next one year. Calculated from the company's data, such as profit estimates, profitability, history of stock price, financial ratios such as P / E Ratio, P / BV Ratio.
Most often occur with long-term investments such as buy and hold for 3 years, 5 years, 8 years etc. This group of investors aim to receive dividends paid regularly by the company. However, if the company faces the fundamental changes, such as sluggish industry, fierce competition then sales declined. Executives admit that earnings can be a loss. Investors must assess whether they have an impact on a company's fundamentals or not. And if found that it can affect the ability to pay a dividend, you must decide to sell it.
5.Price runs fast
When the stock is running high without any underlying factors, should consider selling it out. Naturally, when the stock price rises sharply in this way. Sooner or later, prices will drop sharply as well. Of course, it cannot be estimated when prices will decline so the best strategy is to set up sales point to cut loss.
This often happens with senior executives who have the authority to make decisions. As in the past, companies have recognized that executives are credible and transparency in disclosure information. But later the auditor reports that the company has refurbished the account and the executives come out and admit that it's true. If this happens, investors must sell their stocks immediately.
Therefore, cannot deny that successful investor, besides good at buying stock, an important step is good at selling it as well. Because it is the point that determine whether there will be a profit or loss.