More on when to sell a stock
Published:Wednesday | May 25, 2011 | 12:00 AM
Last week we began a look at when to sell a stock. We grouped the reasons for selling a stock into two categories, personal reasons and market related reasons and highlighted two market related reasons that would be considered good sell signals. This week, we present two more market related reasons for selling a stock.
Sell Signal three: When a stock is overvalued: As an investor, you should have a sense of what the true or intrinsic value of a stock is. When a stock's price gets pushed way past its intrinsic value, you can expect that stock's price to fall. This type of fall in price is called a market correction. The appropriate strategy would be to sell when the stock is overvalued and buy them back after the market correction has pushed the price back down.
Sell-signal four: The stock is taking over your portfolio: In constructing your portfolio, you have decided that you want your portfolio to be 50 per cent stocks, 40 per cent bonds and 10 per cent cash. However, as a result of increases in stock prices, stocks are now 70 per cent of your portfolio. As difficult as it might be, this may be a good time to sell some stocks so as to rebalance your portfolio to get back to the portfolio mix you decided was right for you. If you decide the original portfolio mix is still right for you, you should then analyse your stock portfolio and decide which positions to reduce or eliminate.
Next, we present some personal reasons for selling a stock.