What is a winning stock?
A winning stock is one that has won in the past and will likely continue winning in the future. If its earnings have been steadily increasing, despite price shocks, and adverse economic downturns, then it is a winning stock.
Due to the immensely high value of winning stocks, investors may be caught between a rock and a hard place when deciding whether to sell or hold them. Investment boils down to picking winning stocks. While some investors may trust their instinct, it is always best to back this up with useful financial metrics.
To determine what stocks qualify as winning stocks, we recommend the following considerations:
- How has the stock’s price been in the past? It should be steadily rising. Consistency and stability are key here.
- How does the stock compare to its peers? It should have higher returns and margins. This comparison should be made on equal ground and similar factors.
- How has the stock’s price fared during economic downturns? It should weather the rain and be persistent. A winning stock will remain winning through all seasons. If its peer stock prices are decreasing rapidly, and the winning stock’s prices are falling less rapidly, it remains a winning stock.
Why you’d want to sell your winning stock
By now, you are probably wondering if there is any need to sell your winning stock. If it ain’t broke, don’t fix it, right? However, for investors, the sole goal is to make more money, and selling a winning stock might just be it.
There is a common rule on Wall Street; that pigs get slaughtered. Most financial advisors will advise against selling winning stocks. Holding on to them greatly minimizes risk; in fact, to a degree, it eliminates risk. Holding winning stocks saves an investor from uncalled-for risks.
Despite all this, there are a few reasons why one would consider selling their winning stock:
Imminent warning signs
Your winning stock may get on a steady decline someday. Investors should pay much attention to a stock’s forecast. If you notice these warning signs, such as other stocks with more potential beginning their steady rise or an announcement of the cancellation of this particular stock by an authority.
For instance, your winning stock could be on a particular type of tea, but there have been recent health concerns. It is best to cash out early enough. The best way to forecast your winning stock’s future performance is by using financial ratios, insight, data analytics, and fundamental analysis.
Urgent financial needs
You could be caught in a hard place. You need money to pay your mortgage or to refinance your business project, yet your financing options are limited. Your available source of money could only be your winning stock; hence you are only left with the option of selling it. However, as a caution, consider other financing avenues first, as a winning stock could help clear the debt that such solutions cause.
Change in investment mindset
You might realize that your reasons for buying a particular stock may have changed over time. Your investment philosophy may have been altered by recent market shifts or more knowledge on investment. Therefore, you may need to sell your winning stock to reflect these changes.
Rebalancing your portfolio
Generally, your portfolio should be steady and up. Diversifying your portfolio spreads out risk, which means less likelihood of loss. You could consider selling your winning stock if you realize that you have put all your eggs in one basket. Using this money earned to invest in multiple stocks and sectors reduces risk and may increase margins. Consider your level of risk tolerance before making this decision; some investors are perfectly okay with fewer returns so long as the risk is kept at a bare minimum. It is possible that, in the long run, your one winning stock could produce multiple winning stocks.
Better investment opportunities
Your winning stock may be raking in profits, but other investment opportunities exist out there that ‘are winning more.’ If you have extra money stashed up somewhere, you enjoy the liberty of buying this new winner and retaining your winning stock. However, if your funds are limited, you might be required to sell your winning stock in favour of another one that will bring in more returns.
When should you sell your winning stock?
Investors should always keep tabs on the market and detect any shifts before they become widespread. Typically, you could get a few days or hours before the shifts become visible, which is ample time to sell your winning stock. No one will suspect that it’s an escape route because people sell stocks daily and every hour.
There are some strategies that you could employ to know when you should consider selling your winning stock:
- Recent hype. When your winning stock is extensively, aggressively and intensively promoted through the media, word-of-mouth and other communication tools, it is best to let it go and sell it. Holding it may earn you money, but selling it will help you take more money to the bank. For winning stock, it is not about just making a profit, but how much.
- Instinct. Before selling any stock that you own, first, sit and assess your trading patterns. Are you an impulsive trader? Or do you prefer to wait it out? It is wise to limit your trading because it carries expensive costs. However, as a business person, your instinct may advise you to sell your stock. Business instinct is built from experience and expertise.
- Sudden increase after constant earnings. Your winning stock could be winning at a constant rate; it’s not losing, but its winning has almost become predictable. When you notice a sudden increase in its price, it is best to sell it rather than hold it. If you were sure you would sell it if and when it increased its price, do so without hesitation.
- When competition declares bad reports. Every time your winning stock brings in higher returns, it is prudent to check what is happening on the competition side. Maybe you could learn from their mistakes and better your processes. It is unfortunate to believe that your winning stock has a streak of luck and ignore other factors. If your competition bemoans adverse market shift predictions, it is best to follow suit and sell your winning stock. Better luck elsewhere.
However, ensure that it is not just a hoax, and even then, sometimes, in such cases, it is better to hold than to sell because of the vacuum that could be created if everyone left that particular industry.
A rule of thumb when it comes to investing is that your gut should be perfectly okay with your decision. While there are numerous exceptions to this rule, it remains obvious that investors have a sharp gut instinct developed over experience and passion. Reach out to your inner person. Would they sell their winning stock?
