Is it the right time to sell one's portfolio stocks having a profit of more than 30 per cent? If yes, what should be the appropriate quantity?
- Shailesh Phule
This is the biggest dilemma that investors face. After witnessing a decline in March, people were telling me that they wanted to run away from the market a month ago or a week ago, etc., as the markets recovered from its lowest in March. But I believe there are only three reasons that one should consider while selling one's investments. At any point in time, you should be guided by these three primary reasons for selling your investments.
Firstly, for stocks, building a view on the future outlook of the companies that you have invested in is very important. It helps you decide when to sell. For instance, specific stocks that you have been investing in have done exceptionally well and you think the stocks have become very expensive and can't go up any further, then, by all means, sell them. Or if you have made an investment which has done well in the past but you are expecting that this business will not do well in the future, then also you should sell your stocks.
The second reason is when you are nearing a goal for which you have been investing. For instance, if you have been investing for the past five-seven years and would need the money in the next two-three years, you should start preparing your withdrawal. Depending on the magnitude of the money and negotiability of the goal, start your SWP one and a half year to two years before you need the money, especially if the goal you have been investing for is non-negotiable and you would definitely need the money. It will ensure that you are not dependent on the state of the market when you actually need the money.
The third reason could be resetting your asset allocation. If you have been working on asset allocation and have decided that your 50 per cent assets will be in equity and 50 per cent in debt and over a period of time, the equity component has become 70 per cent because of its rapid appreciation, then sell a part of it and invest in debt.
These three factors should drive you to sell your investments instead of the state of the market. Because if you try to anticipate the market, you can go wrong. In my 30 years of looking at mutual funds, I haven't come across any magician who has been able to anticipate the market in the immediate future. Nobody knows what will happen in the next two to six months. So, don't do that. You will recall that after the decline in March, everybody expected the market to fall further but to everyone's surprise, the markets have recovered a lot in the past two-three months. I remember when we started the Value Research Helpline, somebody told me that he got rid of his investments in the month of March but now he is waiting to enter the markets again. Now, he has two problems, one he actually lost money that he had accumulated over the past two-three years by selling his investment at a loss. And after he has lost money, whatever he is left with, he is now buying the stocks or funds at 20-30 per cent higher price than what he had sold them at. So, if you are guided by the noise in the market or anticipation of the market, don't do that.
This article was originally published on September 07, 2020.
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