Selling Shares: 8 top tips on selling shares

---

 

Its been said that the way to make money from shares is to buy low sell high. Unfortunately too often private investors get this the wrong way round piling in when shares are high and then selling when they fall. In other words they buy high and sell low. What youll learn here are some basic ground rules for you to follow to make the right decision about when to sell your shares.

 

• Top Tip #1 Dont get over-emotional about your sharesTop Tip #2 Know when to take your profitTop Tip #3 A share can be a dog but its not for lifeTop Tip #4 Know when to cut your lossesTop Tip #5 Keep an eye on Directors dealingsTop Tip #6 Dont jump too soonTop Tip #7 Be aware beware of trends and tipsTop Tip #8 You can always buy shares backWant to track your investments Moneyextra.coms free portfolio service has all the tools you need.Top of PageMoneyextra.com Share Dealing account provided by The Share Centre to help you know when it is time to take another look at your shares.Want to keep track of how the stock market is performing See top shares at a glance.Top of Pageblue chip in the past doesnt mean it will be around forever anybody remember MarconiFind the share price youre looking for.Top of PageMoneyextra.com Share Dealing account provided by The Share Centre you will have the option of setting a Stop-loss Limit that means youll automatically sell if a share price falls to a level you specified. Or you may use a Tracking Stop-Loss Limit and protect profits you make as a price rises and then starts to fall back.Are you looking for a share dealing account Do you want to manage your portfolio online but dont want to trade more than twice a month Try Moneyextra.com Trader!Top of PageGet free company reports and up to date financial information on selected companies for your investment decisions.Top of PageWant to set up an online share trading account Will you be an active trader Check out Moneyextra.coms frequent trader service.Top of PageRequest Free brochures on share dealing spread betting and CFDs.Top of PageMoneyextra.com Share Dealing account provided by The Share Centre to set a limit purchase order with your new target price - once the share reaches that point youll automatically buy back in.Moneyextra.coms Investment Centre contains all you need to know about investing in the stock market. Moneyextra.com

Top Tip #1 Dont get over-emotional about your shares

Shares are an investment a financial investment. But for many people they become an emotional investment too. That can be dangerous. Dont allow yourself to get so attached to your shares that you ignore all the signs telling you it is time to sell them.

 

If you have lost money because a share price has gone down it can be very hard to let go. It is only human nature to hold on grimly in the hope that the share price will go back up. Unfortunately what goes down must come back up is not a stock market rule.

 

Remember investing is about maximising your financial return. It is not about emotion. Most of us have only a limited amount of funds to invest so we need to use this money to its best effect. If you spot a share with better prospects than one you already hold you should consider switching your investment remembering to bear in mind the costs involved stamp duty dealing any potential Capital Gains Tax liability.

 

Allocating your resources correctly is what is important. Holding a share stops you using that money elsewhere so make sure youre investing for the right reasons.

 

Top Tip #2 Know when to take your profit

The best way of knowing when it is time to sell a share is to set a target profit level for yourself at the time at which you buy the share. Then assuming the price rises when the share hits your target level sell and take your profit. Remember a profit isnt a profit until youve sold the share. A paper profit will buy you nothing.

 

If the share price is rising it is easy to think that it will continue to do so. Theres an old stock market saying - Always leave something for the next man. Remember if youre selling somebody else has to be a willing buyer. Once you have sold be happy that you have made your profit.

 

Of course you dont have to sell when a share reaches your target level but if it does you should take a fresh look at the shares and consider your options. You could sell and take the profit or you could top slice your investment sell enough shares to get back your capital and perhaps some of your profit leaving part of your holding in place.

 

Top slicing means that if the shares fall you have protected your capital and taken a gain. If the shares continue to rise you still have some exposure and will make further profits.

 

Use limit orders and alerts on your

 

Top Tip #3 A share can be a dog but its not for life

In stock market parlance a dog is an investment that produces a low return or a loss. If youve any long term experience of the stock market you may well have owned shares that could quite easily have howled at the moon! It is a fact of life.

 

But unlike dogs shares are not for life. Long-term investing known as buy and hold may not work as well now as it did in the past as a stock market strategy. Competition in many industry sectors is much greater than it was and some companies adapt better than others. Just because a company was a

 

Many people now buy shares in the company they work for through Sharesave Plans. This can be a tax-efficient and cost-effective way of building up a share-holding. However that doesnt mean you should hang on to the shares forever. Youre already exposed to the company because you work for it. Investing in it increases your exposure. What if the company runs into problems - its share price could fall and you could be made redundant thus facing a double whammy of losses on your investment and loss of your income.

 

Dont become attached to a share weve said that already. Maybe you inherited the holding maybe its the first share you ever bought. None of that matters. Whatever your reason for holding the share in the first place you need to be clinical when it comes to selling. If the share is not doing what it should for you and is not likely to in terms of income generation or capital growth then you should sell.

 

Shares are not to be parked under the bed and forgotten about. You may check your share prices regularly perhaps even daily but do you actually review your holdings to see if your investment strategy still makes sense. If it does fine; if it doesnt sell! Take a cold hard look at your portfolio at least every two-three months.

 

Top Tip #4 Know when to cut your losses

No-one likes to lose and especially no-one likes to lose money. However it is better to take a small loss rather than a large loss. When you buy a share as well as setting a target profit level you should set a target loss level. Making that decision at the outset can save you a lot of agonising later on.

 

Of course as with profit targets you dont have to sell. But if your share reaches its loss level then you need to look very hard at the prospects for the company concerned and for its share price to have a good reason to hang on.

 

Biting the bullet and taking the loss if thats what you decide to do means you can use your remaining capital to find a new and better we hope investment.

 

In your

 

Top Tip #5 Keep an eye on Directors dealings

Watching the directors was not a song by Elvis Costello but its definitely something you should be doing. You may think that if a director sells then there is something wrong with the company. That may be the case but not always. There can be a variety of reasons for directors to sell often wholly unrelated to the performance of the business.

 

Do bear in that in many cases the directors may well be under certain restrictions when it comes to share dealing and may often only sell certain amounts at certain times of the year. If the share price has had a good run a director will take advantage of this just like any other investor and sell simply to lock in a bit of profit. School fees may loom large as a driver for share sales.

 

Divorce has also been a key factor in 2004 Stephen Marks founder of French Connection and David Harding chief executive of William Hill both sold large holdings in their respective companies to fund settlements. The following year Mark Dixon of Regus Group and Sir Martin Sorrell of WPP found themselves in similar situations.

 

However take note if several directors are selling. You need to understand the reason why and take your decision then. Check how the company is performing and look for evidence that would provide a reason for the sales. It could well be time to follow suit.

 

Top Tip #6 Dont jump too soon

There are times when shares just dont move much - even when the rest of the market is roaring collapsing around them. Even shares that have been tipped as strong buying opportunities may not move much - the tip may be based on an event say the launch of a new product that is some way off. The stock market may not react until the product is out in the market and selling well.

 

Review your share holdings regularly. As long the fundamental reason for making the investment in the first place holds true then you may reasonably still hold the share.

 

Do keep an eye on the news not just the financial news. Some stories will have a more obvious impact than others. But keep in mind also that the stock market may already have taken the news into account by reacting to rumour ahead of confirmation and pricing shares accordingly.

 

Consider how news and events can affect the value of your shares - a profits warning will most likely send the share price lower but would a profits warning from a competitor do so Maybe - it could be a sign the sector as a whole is in trouble or it could be a sign that the company you have invested in is beating its competitors.

 

Other news items should also give you pause for thought. A change in interest rates will affect banking shares but may also have knock-on effects to house building retailers and travel businesses depending upon consumer reaction to the news.

 

Top Tip #7 Be aware beware of trends and tips

Past performance is not a guide to future performance or a trend is a trend until it isnt a trend and then its a new trend! You should treat trend analysis with caution. Be aware of trends but also beware of them.

 

Chartists use complex share price charts to attempt to discern the future movement of share prices from the shapes created by the charts. Theyll tell you that everything you need to know about where a share is going next can be found from the trend it has been following. A highly profitable niche industry produces a plethora of books and online and offline newsletters dedicated to Chartism.

 

The easiest trend to spot is where a share price moves in a certain range - never falling below a particular point and never rising above another. If the price moves out of this range either above or below it that is a good time to take a closer look at your investment and consider selling. Other trends are worth considering including seasonal consumer trends and technological change.

 

Trends are of course open to interpretation. So is news. As Humpty Dumpty put it in Through the Looking Glass "When I use a word it means just what I choose it to mean neither more nor less." Make sure you know the difference between fact and interpretation.

 

Also be wary of newspaper share tips. By the time you read them the news will already be in the share price although that doesnt mean you shouldnt follow up the idea with your own investigation.

 

Dont be over emotional about your shares - this is where we started and its also where we finish. If all the signs are pointing to the fact that you should sell but you still like the company dont forget you can always buy back into it later. Sell now and you could take a profit or cut a loss and buy back in at a lower price later.

 

If you like the company for all the right reasons the share price could well turn upwards again. Use your

 

Please remember that past performance is no guide to the future and that the value of shares and the level of income they provide can fall as well as rise.

 

02 October 2007

 

2009-03-09 16:24:34 © Moneyextra.com

Moneyextra.com recommends you take independent financial advice before acting on any article