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Purchasing stocks of a high-rated company is not the only criteria. It is important for you to get a better understanding of the market through self-experience. Do not rely on the experiences of other investors as their lucky upsides can result in your downfall.

We opt for investing in share markets in order gain more from better returns and not for losing out on our savings and entering into a debt of procuring a personal loan or a home loan, etc. ,in future, to finance our requirements. In order to benefit from the highs of the market and protect yourself during the slumps, you should know how your stocks need to be traded.

Change in company fundamentals
At the time of purchasing shares of a company, you might have done a thorough background check about its credibility, fundamentals, etc. But after a few years, luck may not favor you if a new competitor enters the market and gives cut throat competition to your organization. In such cases, it is time to reassess the company's worth and find out how beneficial things are for you in such change of events and reconsider the option of holding onto the shares of that particular company.

Price shoots up too high too soon
Remember, the most successful investors are also among the most humble ones. If the stock prices just shot up to about 20-30 per cent more than the price you paid to acquire it, do not be greedy and consider it to be one of the best decisions. A prudent investor will sell off those shares at that point of time when its price reaches the peak, as there are chances for a crash in the prices in such cases. Investors should consider pulling out only if their profit target has been reached. If one keeps selling in spurts, one could miss out on prospective multi-baggers.

Stock price drops below a threshold level
After purchasing your shares, if you realize that your stock prices have gone much lower than the expected level, it is best if you can intervene and withdraw your shares before you enter into a huge loss. Experts usually advocate a 15-20 per cent stop loss, depending on your risk tolerance level.

Better opportunity
If you think that shares of Company A are performing better than those of Company B, you reconsider your decision and withdraw your shares from B and invest in A. Investors should keep an eye open for the way that the earnings season pans out and make their moves accordingly.

Portfolio re-balancing
Apart from all these market factors, personal factors are also important when it comes to selling shares.  Over a period of time, you may find that your asset mix has become unfavorably skewed and is not aligned with your risk appetite. Perhaps, the mid-cap stocks in your basket have had a phenomenal run over the past year.

Disclaimer: All information in this article has been provided by BankBazaar.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Story first published on: January 18, 2013 19:03 (IST)

Tags: stock markets, investment, trading

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