There are some situations when the cardinal rule of investing -- sell when high -- may not hold true.
Indian markets have taken a small dip in the recent days after the US Federal Reserve showed its more hawkish stance on interest rate hikes. The increased volatility from those comments, the global macroeconomic condition and tensions over Russia’s possible invasion of Ukraine are just some of the factors that are spooking investors across the globe.
In such a situation, it can become hard to know when to sell the stock which has taken a dip. While selling stocks as they go down is against one of the cardinal rules of investing -- sell when high -- there are some situations when that might just be the best option.
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Sell if your appetite for risk is not high
Stocks are volatile. No matter what company or index you purchase shares from, the underlying realities of the market mean that the value of these assets is generally volatile. If you are looking to de-risk your positions or do not have a large risk appetite, then it is usually best to sell off your stocks at the earliest. This prevents you from selling at the very bottom of the market out of sheer panic.
Sell when stocks fall below technical levels
Technical analysis is not something that beginner investors are conversant with. But technical analysis does show one important thing that investors with a sizeable appetite for risk should keep in mind. When stocks fall below their technical support levels, it is indicative of the fact that they might see further erosion in value.
Sell when you have a better option
Most importantly, don’t be afraid to sell if you have a better (or safer) option to invest in. This might be another investment opportunity or any other short-term goal that you may have. Though it is well understood that investing for just short term goals is statistically proven to be worse off than long-term investing.
Practise safe investment by only investing a sum of money that you are fine with losing and ensure that you are investing money where the risk matches up with your own risk appetite. Often, stocks are able to weather the storm and emerge stronger on the other side. Just remember that you should not be the last one holding a stock if it does start to dip.
Also read: Indian market valuation main concern for foreign investors, bullish on banking space: Credit Suisse
(Edited by : Shoma Bhattacharjee)