Buying vs. Selling
When to Buy a Stock?
The best time to buy a share depends on an individual’s financial goals and investment strategy. However, here are a few general principles that many investors consider when deciding when to buy a stock:
There are three significant factors based on which a person should make an investment decision.
1) Fundamentals of the Company: Fundamental Analysis of the company tells the following factors:
- Sales & Profit – Year-on-year sales and corresponding net profits.
- Growth – Year-on-year growth in sales and profit percentage.
- Use of Profit – The company uses the profit to re-invest, pay dividends, or repay earlier debts/interest on debts (see debt/equity ratio).
2) Demand of the Product: The demand for the product can be judged based on these three questions, and the buying decision can be made.
According to Warren Buffet
- What durable competitive advantage (incompetent and sustainable) is the company’s product offering?
- Is the company producing a need-based product or a trend-based product?
- What will be the demand for the product after ten years?
3) Valuation: Before making any buying decision, the final call is to check whether the stock is undervalued or overvalued. If the stock is undervalued, it is the right time to buy.
Be fearful when others are greedy, and greedy when others are fearful.” – Warren Buffett
(The concept of overvalued and undervalued stocks will be covered in the next module)
When To Sell a Stock?
Our favorite Holding Period is Forever. – Warren Buffet
Here are some factors investors may consider when deciding whether to sell a stock:
- Changes in the Company’s Fundamentals:: An investor may choose to sell its stock if they no longer believe in its future growth prospects. If the company starts underperforming for a few years or does not give satisfactory returns.
- Tax Benefits– So investors sell shares to take tax benefits or to offset capital gains.
- Reaching financial goals: An investor may sell shares if they have reached their investment goals, such as retirement age or a certain amount of profit.
- Rebalancing or change in investment strategy: An investor may choose to sell a stock if they no longer align with their investment strategy or want to reallocate their funds to a different investment.
- Market conditions: If the overall stock market is experiencing a significant downturn or correction, investors may choose to sell to limit losses or reduce their risk exposure.
- Stock Valuation: If the stock price has risen to a point where it is significantly above the company’s intrinsic value, and the overvalued price is not justified, it may be time to sell.
When to Buy a Stock?
The best time to buy a share depends on an individual’s financial goals and investment strategy. However, here are a few general principles that many investors consider when deciding when to buy a stock:
There are three significant factors based on which a person should make an investment decision.
1) Fundamentals of the Company: Fundamental Analysis of the company tells the following factors:
- Sales & Profit – Year-on-year sales and corresponding net profits.
- Growth – Year-on-year growth in sales and profit percentage.
- Use of Profit – The company uses the profit to re-invest, pay dividends, or repay earlier debts/interest on debts (see debt/equity ratio).
2) Demand of the Product: The demand for the product can be judged based on these three questions, and the buying decision can be made.
According to Warren Buffet
- What durable competitive advantage (incompetent and sustainable) is the company’s product offering?
- Is the company producing a need-based product or a trend-based product?
- What will be the demand for the product after ten years?
3) Valuation: Before making any buying decision, the final call is to check whether the stock is undervalued or overvalued. If the stock is undervalued, it is the right time to buy.
Be fearful when others are greedy, and greedy when others are fearful.” – Warren Buffett
(The concept of overvalued and undervalued stocks will be covered in the next module)
When To Sell a Stock?
Our favorite Holding Period is Forever. – Warren Buffet
Here are some factors investors may consider when deciding whether to sell a stock:
- Changes in the Company’s Fundamentals:: An investor may choose to sell its stock if they no longer believe in its future growth prospects. If the company starts underperforming for a few years or does not give satisfactory returns.
- Tax Benefits– So investors sell shares to take tax benefits or to offset capital gains.
- Reaching financial goals: An investor may sell shares if they have reached their investment goals, such as retirement age or a certain amount of profit.
- Rebalancing or change in investment strategy: An investor may choose to sell a stock if they no longer align with their investment strategy or want to reallocate their funds to a different investment.
- Market conditions: If the overall stock market is experiencing a significant downturn or correction, investors may choose to sell to limit losses or reduce their risk exposure.
- Stock Valuation: If the stock price has risen to a point where it is significantly above the company’s intrinsic value, and the overvalued price is not justified, it may be time to sell.