Buying and selling stocks might sound thrilling, difficult, and perplexing all at the same time. There is no lack of financial belles-lettres regarding when to acquire and sell a stock, but deciding on a plan for holding or selling a stock is also critical. Before buying or selling an investment, investors must evaluate various aspects, including how much risk they are ready to face and when they will need the money. Whether you are new to investing or a seasoned pro, the everlasting issue is- when is the ideal time to purchase (or sell) stocks? While many claim that there is no such thing, there are several simple rules of thumb that can help you reduce your risks and increase your chances of success.

• Why there is a need to buy or sell a stock?

The fundamentals of when to purchase and sell stocks revolve around understanding how a stock market operates. The concept is to purchase low and sell high: for example, if you buy a stock for Rs.1 and sell it for Rs.2, you would have made a profit. For a multitude of factors, any one stock might move up or down on any given day. Perhaps the stock’s underlying business model is flawed, and the firm will lose money. A report from an analyst, a rumor regarding upcoming corporate moves, or broader economic news might all affect the stock price.

Because of this turbulence, it may be dangerous for individual investors to purchase and sell stocks for a profit, therefore many investors choose ETFs, index funds, or mutual funds, which incorporate a variety of equities in one convenient bundle.

Keep in mind that past actions are no guarantee of future success. For example, the S&P 500 witnessed return of -6.24 % in 2018, but saw 28.88 % in 2019.

• Factors considered when buying a Stock

Purchasing stocks isn’t as difficult as it appears, but you’ll need to do some research — and understand the jargon — before making your first purchase.

When an investor has done their homework and is certain that a stock’s price will grow in the short or long term, and they’re ready to hang on to it until it does, that’s when they should buy it. While it is generally a good idea to acquire stocks from a variety of industries in order to diversify, it might be helpful to start with a company or industry that one is familiar with. Knowing anything about the firm might help you put the earnings reports into perspective.

1.Understanding the value of stocks is inextricably linked to comprehending the firm in which they represent a stake.

• Is the business a wise investment?
• Is it financially solid and has room to grow?

Now, let’s look at how to figure out what a company’s current state is. What makes a firm “great” is judged mostly by its financial outcomes, not by how many times news websites write about it or whether your next-door neighbor sends you a hot tip, sarcastically.

We’re searching for the following outcomes, among others:

2. Profitability is consistently high.

When investors want to know how a firm is doing, they’ll most likely look at its income statement on the company’s website or in its annual report. The total income of the company is displayed at the top, followed by multiple rows of costs. The company’s net income, also known as net profit or loss, appears at the bottom of the income statement. If this statistic is higher than previous year’s, it is reasonable to assume that the company is performing well. Is that true, though?

The performance of a company, it turns out, is a little more complicated than its well-known bottom line. That’s why, when appraising a stock, most analysts look at many sources of profit. They may consider gross profit and operational profit in addition to net profit. Each of these income statement line items contains critical information about the company’s performance. And, if the investor understands what to look for, the various metrics of profit may help determine if current patterns, whether positive or negative, are likely to continue.

3.Debt levels are low.

The debt levels indicate the proportions of equity and debt used to fund a company’s assets, as well as the extent to which shareholder equity can meet creditors’ obligations in the case of a business failure. The bigger the percentage of a firm’s activities that are supported by borrowed money, the greater the danger of bankruptcy if the company runs into financial difficulties. Debt may also be beneficial in enabling a company’s healthy growth.

4. Having the ability to meet its short-term obligations.

Short-term ability refers to a company’s capacity to satisfy its short-term financial obligations. The link between current obligations and current assets is measured by short-term ability. Current liabilities, such as trade creditors, bank overdrafts, PAYE, VAT, and any other sums due within the next twelve months, are examples of short-term financial commitments. Stocks and work-in-progress, debtors, and cash that would ordinarily be re-circulated to meet current liabilities are all examples of current assets.

Aside from financial outcomes, it’s critical that the firm has a long-term competitive advantage, or “moat,” as Warren Buffett calls it, or else competitors will eat into their margins over time, as well as shareholder-friendly management.

Factors considered when selling a Stock

Selling a stock is just as crucial and time-consuming as purchasing one. Choosing whether to keep or sell a stock can be a difficult decision. A uniform, one-size-fits-all technique for selling a stock does not exist. Instead, it is up to the individual investor to determine their investing plan based on a variety of characteristics such as risk tolerance, time horizon, and financial objectives. Here are few instances in which selling a stock is justified.

1.Price has reached its maximum value.

Remember how I mentioned you should only invest in stocks whose price is significantly lower than their true value? When it comes to selling, you should sell stocks when their price approaches their worth, since this indicates that there is limited upside left, and you should reinvest your money in companies with greater upside potential. Investing in equities that grow in value above their intrinsic worth is illogical and should be avoided.

2. Long-term issues emerge.

The firm whose stock you purchased may have been performing well at the time of purchase, but issues might surface over time, necessitating a re-evaluation of your investment. Only sell if the firm is facing long-term issues that are unlikely to improve very soon, such as regulation that is impeding the company’s business model. If the firm faces a one-time headwind, such as a court-ordered penalty charge, or if the stock price has been falling for a long but the business is still doing well, don’t sell.

3. A better chance presents itself.

You should invest your money where you can get the most return on it. If a better opportunity presents itself, sell and reinvest your money in a mediocre firm with mediocre upside potential.

Some may argue that another excellent reason to sell is if you need money for an emergency, and although this is true for some individuals, it is not always a good reason, since you should only invest with money you won’t need in the next five years.

of course, situations happen that are out of your control, but being forced to sell is something you should attempt to avoid at all costs, since it will almost certainly not be the best time to sell. one of the reason to sell a stock, as many long-term-focused do frequently is to offload parts of their holdings.