By James Woolley
For most people who buy and sell stocks, the goal is simply to sell their stocks for more than they paid for them. However the reality is that you have to have a better plan than that. You need to think about when you will actually sell your shares, and what kind of profit target you hope to achieve.
There is no right or wrong answer here. Some people will have certain profit targets in mind such as 10%, 20% or 50%, for instance, but there is one rule you absolutely must adhere to.
You have to try and bank profits that more than compensate for any losses that you may incur. For example it is a very risky strategy to look for 10% gains from each trade if you are prepared to accept losses in the region of 20% or more to achieve these gains.
If you fail to do this, then your winning trades will end up being wiped out by one or two trades that go badly wrong. Unfortunately this can happen to anyone because even the very best companies can issue profit warnings out of nowhere, and the share price can plunge in a matter of seconds.
Another idea you may wish to adopt with regards to the timing of your exit points is to simply hold on to stocks forever, just like Warren Buffett does. Now I wouldn’t necessarily recommend you do this with every kind of company you invest in, because you may pick up a few duds. However there are some stocks that are worth holding on to for years and years.
These are basically the large market-leading stocks that have long and established records of dividend growth and earnings growth. So I’m thinking of the likes of Walmart in the US and Tesco in the UK. If you invest in these stocks, you can expect the share price to continue going up in the long run, albeit with a few fluctuations when the wider stock market falls at times of uncertainty.
So therefore it is hardly worth dipping in and out of these stocks all the time. It is better to simply buy at an opportune moment, ie when the stock appears to be trading at a bargain price, and hold on to it forever. That way you will hopefully benefit from ongoing capital growth as well as a stable and growing dividend payment each year, which you can then reinvest for even greater returns.
The point is that there is no correct answer as regards the best time to sell shares. However you should always ensure that your profits more than compensate for your losing trades, and you should consider never selling at all if you have good quality growth stocks in your portfolio.
About the Author
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