Philip Fisher, an investor offers three reasons for selling stocks .
One should only sell stocks when :
1. If a mistake was made in original purchase – Some times people get attached with regards to holding stocks for long term in a way that they overlook the mistake they committed while purchasing stock .
If as a result when stock prices fall, they do not sell it. They keep it in their portfolio with a hope that price will correct itself in long run.
But when price do not correct , they end up making huge losses.
So whenever you realize that you committed mistake at the time of purchasing stock, sell it without waiting for corrections.
2. The stock no longer satisfy the criteria that were looked into while purchasing it – The facts you considered when you originally purchase share may have been deemed to be correct, but facts can change negatively over the passage of time. Say you bought a stock looking at the integrity of the management and strong business model, what if management of the company changed and new management is not showing integrity or the business model is changed drastically.
3. A more attractive stock is identified – If you find better investment opportunity and you have shortage of cash, It is the best option to sell the stock for better opportunity. Make sure that the benefit of the new investment opportunity outweigh the implication of capital gain tax resulting from sell of previous stock.
Philip Fisher also noted that selling stocks should not turns out to be very often.
“If the job has been correctly done when a common stock is purchased, the time to sell it is almost never.”
– Philip Fisher