Navigating the stock market isn’t easy. Prices can be volatile. One day you can be riding an upward trend, only to see price loss at the end of trading. Some investors advise you o hold onto your stock for the long haul, but how do you determine when you’re at the end of the road? Here are some tips on how to know when to cash out.
Develop A Plan When You’re Buying For When You’ll Sell
Whenever you make an investment in stock, you should predetermine an exit strategy. Identify the purpose of the investment. Are you saving for retirement? Then you may want to avoid selling, regardless of price fluctuation. Otherwise, set a target price in mind for when you’ll sell. Then you’ll have a guidepost, and know when a stock is overvalued.
Determine If The Stock Is Overvalued
The market has a way of naturally determining if a stock is overvalued. Value is based on many factors. Intrinsic value is a reflection of the sum of an investment’s future earnings. This can be determined by looking at other similar companies as well as the price to earnings ratio of the company in question. If the value seems out of line with what other similar companies are worth, the market will eventually catch up and drop the price.
Did The Stock Hit Your Price Target?
The power of an investing plan is apparent when your stock hits a predetermined price. A plan provides an automatic release valve so you know when to cash out and move on. This is important because it avoids last minute speculative or emotional stock portfolio management. It also helps you focus on the ideal home for your money.
Is There A Better Place To Invest Your Money?
Opportunity cost is a fundamental economic concept that all investors should understand. If a better home for your money comes along, it’s important to know when to move on and follow a different path. Identifying better opportunities is tricky, and often requires insight and understanding about trends in a particular industry. But it also can be a reaction to news about the company.
React If There Has Been A Major Event
Although identifying trends can be tricky, when the company in which you invest is experiencing a major event, you cannot ignore the writing on the wall. Mergers, bankruptcy, and even lackluster quarterly sales figures can each make an immediate impact on price, so understanding their effect is crucial to your investment strategy.