When is the right time to sell stocks?
Do you know the most common reason why companies fail? Well, we guess it might have to do with debt. Either they don't get it when required or they take on so much that when demand for their product falls, they find it hard to repay it and hence, fall into a debt trap getting out of which could take years. Thus, if the most imperfect stock has the qualities we just described, it is obvious that the most perfect stock would have qualities, which are exactly the opposite. A perfect stock would be the one where the underlying company has neither taken debt for years nor has it raised equity but has still grown its net profits at a pretty decent rate and has also continued to pay handsome dividends. If one draws a circle around such stocks and considers a long-term period of say 8-10 years, we are pretty sure that these stocks would have outperformed most stocks that are listed on the bourses.
Of course, one has to buy such stocks at prices that are reasonable enough. And when should we sell them? Well, if the stock continues to do well and keeps growing its profits as well as dividends, the idea of selling it should not even enter one's mind. This is because all the returns that the investor is expecting from the stock could be met from dividends itself. As the legendary Warren Buffett says, if the homework is done right while purchasing a stock, the time to sell it is never.
editor : Ayush Agrawal
ayushagrawal @ rediffmail.com
CAclubindia
