Assume that you hold shares of an “A” company that, according to your calculations, are quoted at a discount of 20% on their intrinsic value, so they would be trading at a good price. Theoretically, it would not be the time to sell. However, it may be that another company, “B”, is being quoted with a discount of 50%, which would imply a greater potential for revaluation. In this case, selling “A” shares, even though they are still undervalued, may be a good idea if you want to spend the money to buy “B” shares, as these offer greater potential. Knowing which oil stocks to invest in should be determined before throwing money at it.
There is a case in which, although a company continues to trade at an interesting price, it is advisable to sell a portion of the shares that an investor holds in this company’s portfolio and reduce their exposure to it. In the case where a company has revalued enough, however, it may occupy a large percentage of your investment portfolio. In these cases, depending on the person’s risk profile, it may be advisable to reduce your relative position in this company to increase diversification efforts.
Suppose that “A” and “B”, which are part of your investment portfolio, have the same potential for revaluation. Suppose you have in a portfolio a relative position of 15% in “A” shares and 5% in “B” shares. You may be interested in reducing your position in “A” and increasing it in “B” to redistribute the weight of each company and minimize the risk of the portfolio. It is interesting to know that there are several determining factors that tells investors when to sell shares, as this is related to its increased intrinsic risk value of the company in question. This increased risk may make the company no longer attractive depending on the profile.
This increased risk may be due to different factors. Among others:
- Losses of competitive advantages
- Irruption of a disruptive innovation that changes the rules of the game
- Changes in regulation that negatively affect the company
- Indications of accounting fraud
Selling a stock for personal needs is one of the most common reasons to decide when to sell shares. In fact, it is also the least advisable reason to sell. This is because the necessity most often coincides with periods where stocks trade at prices below its value. Click for more details here.