Do you know when to sell your shares?

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Investors on Dalal Street prefers to sell their winning horses as soon as the share price prices go up. On the other hand, they keep holding the stocks whose share price plunges lower than their purchase price. This is one of the most common behaviour of investors. This shows that they are always in a hurry to book profit and late in booking a loss.

Both of the decisions are devoid of rational thinking. In the first instance, just because one is making a profit is not a reason to offload your shares, simply because if the price has gone up means you have invested in the right stock and there is no reason why it should not go up further. If you sell the stocks which are giving superlative return then it is impossible to get multibagger returns. Therefore, investors should analyse the reason behind rise in prices. Your focus should be on capitalising on the right decision.

In the second case, the pitfall behind waiting for the price to come back to purchase level if the stock price has gone down is like waiting for the wrong decision to turn right, which often does not happen.

Rather in the process loss may become unlimited as the price may fall further and non-investment in a better stock is like opportunity cost. Now, if a stock price really comes back to purchase price level, instead of selling it forthwith, it needs to be reviewed what good has happened to the company that the stock has rebounded. If the price can be back to purchase level then it may have the potential to further goes up.

It is advisable that one should adopt an approach to hold the appreciating stock and get rid of falling knives. This strategy can help in maximising profit and minimise loss.

(The writer is Partner, RAKESH BANSAL VENTURES LLP. Views expressed are personal)