The Art of Selling

I've been investing at personal level in Indian Stock Market for a long time now. I bought my first stock in Dec 2004 and since then my portfolio has grown and grown. I love taking bets and ready to forgo the amount if the market crashes. (so, in a way I'm prepared for the risk). Most of the times I hear news about some stock from somebody in the family or office (and never follow CNBCs, NDTVs stock experts etc), track that stock for probably a month and then take a decision to invest in it. That has been my usual investment style. Things that I have learned post MBA is to look at the financial reports and try to form a basic reasoning before investing. Nevertheless, my returns have been pretty ok and I'm happy doing this personal investment and excelling my return targets every year.

One very important thing that I have observed over a period of time and learned during MBA that the trick of making money in stock market is not through continual investing. However, it is really through selecting the right time to exit and make a realized profit. The realized profit every year is actually my return targets. And because of this strategy, I've made money in the stock market by not waiting for a return and either take a sell or buy more call once I don't see the stock moving in the direction I expect. Have been fortunate to not wait for a long time and see my profits eroding as the financial crisis these days is taking a short cut and returning pretty fast.


Selling is typically the most difficult thing. To me, somebody might not want to sell a stock and take profit for the following two reasons-

1. If there is a profit, then why should I sell because let the profit be there. If I sell, then I have to find a new stock to invest.
2. If there is terrible loss, then why should I sell because anyway it is a loss, so let the money be invested in the stock and hope the price comes back. Moreover, if I sell I again have to search a new stock to invest into.

More often than not, most mom and pops retail investors (my most relatives) give me this reasoning to not sell their stocks who have accrued terrible loses over a period of time. I was going through this post by Deepak Shenoy who lists out the sensex returns over a period of time. The key thing here is that if you reason 1 above to not sell, there is a high possibility of getting sub minimal returns after a time. The profit will just erode and, therefore, you must determine the profit you are aiming from a stock and sell (partial if not full) once it crosses the target price. Regarding where to invest the money, well you can invest part of the profit in safe investments like FD or PPF. Thats what I have been doing for some time now. I always put some % of my profit in FDs. And the strategy is working for the time being.

Learn the art of selling and you might make some money in Stock Market.