Experienced investors know that selling a stock at the right time is just as crucial as buying at the right time. To profit from stocks, people must treat each of these equally. Here are some reasons why successful investors sell stocks.
Many skilled investors will sell a stock if a company’s fundamentals begin to fail. If a company starts to show signs of lagging fundamentals, it often triggers an immediate sell signal. Lagging fundamentals include excess debt, falling sales, and weakening cash flows.
Investors who consistently make money will sell their stock when it hits a specific target price. For example, when a company XYZ’s stock price rises to $30 per share, some investors will immediately sell their shares if $30 is their target price. Experienced investors use target prices if they think a company cannot support a specific price. The thinking is: “Once I hit that price, I will take my profit and move on to another stock.”
Many experienced investors will sell stock to add more capital to their portfolios. Some may use the capital to buy shares of another company, or other investors might use the money to help finance their businesses. Many investors will sell shares of stock to avoid paying too much in capital gains tax.
Many companies pay dividends on each share of stock an investor owns. For example, if someone owns a share of stock valued at $50 per share, and it pays a dividend, the stockholder will receive a small percentage of that $50.
However, some companies will either cut dividends or eliminate them as a cost-saving measure. Experienced investors know that when a company starts to cut dividends, there could be trouble on the horizon.
Many times the stock of a company receives a lot of media attention, and novice investors often jump on the bandwagon. Unfortunately, most of the attention is just hype and has nothing to do with a company’s fundamentals or prospects. In many cases, the hype will bid up to the price of the stock only to fizzle once all the media buzz disappears. Investors who do not sell fast enough will see those skyrocketing profits from all the hype vanish in the blink of an eye.
About Raging Bull Trading
Raging Bull Trading is a trading program that teaches both new and experienced traders about the art of trading and the stock market. Originally launched in 2010 by professional traders Jeff Bishop and Jason Bond, Raging Bull Trading offers a comprehensive course on mastering stock trading from industry experts. The program includes lessons on stock picks, stock ideas, how to get started in trading, and an overall stock market education.