Stock are good for long run and risky for short term by warren buffet. Warren buffet share their thoughts with the help of quotes. Warren buffet also suggest new comers to buy and hold index fund because they have low risk than equity or mutual funds.
Stocks is a risky business you need to understand it first and then only you have courage to invest and hold it for long term.
Buy stocks need fundamental analysis, technical analysis, valuation methods, your own risk taking ability, market conditions, market cap to GDP ratio, etc.
Everyone shares you why you should own stocks because shares give you returns more than inflation, FD, ownership in companies, diversification, high returns, etc.
Everyone knows when to buy but very few know when is the best time to sell your holdings. Selling stocks some times hard because of your emotions.
When You Should Sell Your Stocks or Mutual Funds
Selling stock based on news is not good for any investors because news may be fake or to make fear among investors.
| Index | Reasons |
|---|---|
| 1 | Over Valuation ( High PE ) |
| 2 | Fundamentals Disturb |
| 3 | Management Changes |
| 4 | Cash Flow Issue |
| 5 | Debt Increases |
Over Valuation
Valuation is a method in that investor predict actual business value and compare it to current market prices. There are many valuation methods but two are very famous DCF and PE ratio.
Discounted Cash Flow ( DCF ) method analyze future cash flow of any company. Cash flow is the actual money comes when company make net profits after paying taxes and expenses.
Price to Earning Ratio ( PE ) values base on stock price to earnings of companies. There are two PE ratios first is Trailing PE and Forward PE. Trailing PE ratio analyze last quarters, while forward PE predict future earnings of the company and give share price target.
When PE ratio is very high than industry standards then you should sell your stocks if you think some new opportunity in the market.
Fundamentals Disturb
Investing in good fundamentally strong companies help you to get consistent return in future. Fundamentals will be change in future due to many reasons like decrease in sales, profit down, liabilities increases, etc.
Management Changes
Management is the driver of any company. Without good management company can’t sustain in long run. Vijay kedia and warren buffet famous investors say management must be ethical otherwise great business will fail.
Cash Flow Issue
Some companies make profits but faces cash flow problems avoid them for investing. If any company have good cash flow and suddenly it show negative cash flow from operations then you should think about selling your stocks.
Debt Increases
Debt is the serious concern that above four mention reasons to sell company shares. Debt to equity ratio shows us how much equity is cover by debt. In simple term suppose company have 10 crores of equity and at the same time company have 100 crore debt then it it bad for company.
