Originally posted by rathi ji: ... buying is still comprehensible (not soooooooo complex) but how do you judge that now I should sell my stocks...
If you invested to build up an estate to support you in your retirement, and now you are retired, it might be a good idea to sell some of your stocks and replace them with a life annuity, or to pay off your mortgage.
If you believe speculators have bid the prices of your stocks well above their value, it might be a good idea to sell some of them before the crash. (You might not want to sell all of them, because you might be wrong and the speculators right.)
If you are buying a house, you might want to sell some of your stocks to finance the downpayment. In the U.S., home mortgage interest is deductable from one's taxable income, but if most of that is covered anyway by the standard deduction you might want to sell off your stocks to pay down your mortgage. That way you can keep the standard deduction and reduce your interest payments. The interest you would have paid but now avoid substitutes for the taxable investment income that your stocks were bringing.
If you are investing for the long run, consider this very low effort method...
Pick n diverse investments, eg funds that respond to different trends in the larger economy. Spread yourself evenly over them, 1/n in each. Wait one year. Even yourself out again: sell some of those that went up, buy more of those that went down. Repeat annually. Don't even look in between.
The theory is that your various investments will go up and down as all things do, but in cycles that don't match. This guarantees you buy low and sell high. Yeah, you might do better selling a week earlier or two months later, but if you try too hard to play the game day by day you will miss every movement and always buy high and sell low.
A good question is never answered. It is not a bolt to be tightened into place but a seed to be planted and to bear more seed toward the hope of greening the landscape of the idea. John Ciardi
Thats never easy! [ummm.....I was referring to the original post here.] And its all a matter of personal perception, neccesity and risk level. The best question you want to ask yourself is 'Do I need the money now?'. Additionally, it also depends on what types of stocks you choose to buy.
My principle in investing is long term (read: real long term). But I have friends that follow the CANSLIM approach. I am not good at it so I don't follow that approach (I haven't invested the time it needs to keep up). One rule I have seen from more than one person is drop a stock if you have make more than 10 - 12% on a single day.
The other big thing you want to consider is how much - as a % of you portfolio - you invest in each company. If you invest smaller amounts over large number of companies, then the cost of trading becomes a significant part of your return. That is another thing that you need to factor in while deciding when to sell a particular stock.
My two cents......
- m [ July 28, 2006: Message edited by: Madhav Lakkapragada ]
Originally posted by David O'Meara: I have always thought that stock trading without experience is equivalent to gambling. You can get 60 cents in the dollar on a good day.
And so is stocktrading with experience... The only thing that can help is if you know the industrial sector the company operates in very well so you have at least some indicators of what that sector as a whole is doing. For example my father several years ago had indication that a major merger would come in the dairy sector here. He bought stock in some dairy companies and sure enough they went up rapidly shortly after when the merger was announced. Had he not had 25 years experience working as a consultant (retired by then) in that sector he'd never have caught those indicators.
His investment councelor declared him crazy for buying that stock, said it would go nowhere or even drop. The stock that councelor proposed instead OTOH dropped like a stone and has still not regained the value he would have bought it at now some 5 years later.