When is The Right Time to Sell an Investment?
Deciding when to sell individual stocks
If you've done the research that it takes to weed out the good stocks from the out-performers, then you know that simply a drop in price is not a sufficient reason to sell. A short term drop in price does not reflect a downward trend. Investments such as stocks should be considered long-term investments, so drops in prices or mediocre performance over several months is not a reason to worry. If you've followed what most Wall Street advocates recommend and diversified your portfolio of stocks as well as other investment types, you can rest assured that your portfolio has a high probability for appreciating in value over time.
Of course we've all cut a few corners and followed a hot tip or the "squawk" on the street and bought a stock with little or no research. Unfortunately most of the time, as luck would have it, these hot tips won't pay off, so you have cut your losses and sell. This is of course different than letting nature run its course by unfolding, over time, the growth of a company.
Before you decide to sell, stop and breath. Most investors simply get too emotional when a short term drop in price unfolds. A bit of market fluff spread by the media can have negative effects on a stock's price sending it way down, but this is merely temporary; also minor economic negatives can have a temporary affect. For example, imagine you've invested in a company closely related to the automotive industry, and interest rates suddenly rise. This industry may find a few bumps in the road ahead, but not to worry as it is most likely temporary. Often times a company's competitive business approach isn't going to be significantly affected, and the minor downturn will turn out to be just a small smudge on the radar screen.
One of the more serious trouble indicators is market share. If a company's market share begins to slip away, it's a bit of a different story with a longer-lasting affect. This may be the time to decide to abandon ship. If the company's, market driven, competitive edge is deteriorating, or if the industry is slowly dwindling away, the situation at hand is a bit more troubling. If stock prices of other companies in the same and similar industries are on the rise, and your company's price is falling, you now have a reason to shake in your boots (in other words, start to worry).
The best, and most informative resource to find information on almost any investment is Google Fiance. With Google Finance you can quickly compare price movements and market comparison all from one page. This is an incredible investment tool! There are, however, many newspapers and magazines with hard working analysts and publishers working to provide the latest market trends and information on many different industries. With all of these resources at your finger tips, you'll find plenty of objective information.
Deciding when to sell mutual funds
Mutual funds are really a center point of your portfolio and are a core investment. Day trading, or even trading mutual funds often doesn't make sense. I tend to buy a mutual fund, after careful consideration, and hold on to them longer than 4 years (4 years being a minimum). In my mind, 4 years seems like a decent period to measure the fund managers responsive actions to a down market, because a 4 year cycle will generally include an up and a down market. This is really the last stages of the test to see how the fund managers perform.
Measuring a fund's performance is actually very simple: You monitor the fund's performance with your analysis tools (the Internet). If the fund is performing at par with other funds and the general market, you hold. If your fund isn't performing with this general benchmark over a decent period of time, sell it and research other fund's for a replacement. Just remember to leave emotions out of the equation and take your time.
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