Sell strategies for the stock market

Fix a return level
Remember that your decision to sell coincides with somebody else’s decision to buy. You both think you are making a smart choice. There is no particular level that is the ‘right’ level for all investors to sell. If that were to happen, the stock price would crash to zero. There will always be buyers and sellers at a particular price. You have to decide who you are at a particular price: A buyer, a holder or a seller. It may be easier to fix a certain return that you are expecting out of an investment (hopefully backed by research and fundamental logic and not market mania), and sell when you hit your target. Suppose you fix your target at 20 per cent and at the price of Rs 250 you are getting this return, but the market is still rising. Give a stop-loss order at this price and wait. If the stock drops below your stop-loss price, your broker will automatically sell giving you your target return. If it keeps rising, you keep increasing your profit. “Try and book profits whenever you can. There are two major advantages of this. One, you have money available to buy fresh. Second, since there is always reason for the market to go down, you will be able to capitalise instantly,” says Arun Kejriwal, director, KRIS.

Fix an investment criterion
If you are a long-term holder, you probably find it difficult to sell. Equity is all about holding on for the long-term, but even the ‘long-term’ will some day mature and you need to exit the stock you bought. A sell strategy that long-term equity investors successfully use is the ‘sell-at-bad-smell’ strategy. These investors sell as soon as they get the first whiff of loss in a company. They are value pickers who go after fundamentally strong stocks that are backed by good corporate performance and profits. For them, the only sell signal is the loss signal. Keep a watch on what your companies are doing and track their performance closely.

Sell when the frenzy begins
It is a good time to sell when even those not connected with the market begin to have an opinion on it. When the stock market becomes the topic of discussion at social dos and most people around have success stories to tell of their market killings, it is time to sell. Even blue chips can be sold when prices reach unrealistic levels that are unsupported by the underlying fundamentals. For example, in the 2000 stock boom, many tech shares rose to crazy valuations. Some smart investors sold shares from their tech portfolio and made a killing. On the other hand, the majority of small investors bought tech shares at high levels in 2000 – at levels they should have been selling and making profits. Some of these shares had fallen 97 and 98 per cent and never recovered since then.

Sell if the fund manager underperforms
The basic purpose of getting into an actively managed (as opposed to a passive fund like an index fund that simply gives the market return) equity mutual fund is to be able to beat the market average. Mutual funds charge annual fees to provide an investment management function to you. Unless the fund manager is smart enough to give the market a least an average return, that is the growth in a market index like the Sensex or Nifty, he is not worth the fees he charges. Exit a fund that is performing below the benchmark, irrespective of your own goals or market condition. Reinvest in a better managed fund, look for a three year track record to see the return history.

Inputs from Arundhati Bakshi-Dighe

WHAT THE EXPERTS SAY
Arun Kejriwal,Director, KRIS
There are no selling triggers, book profits whenever you can. The markets have seen corrections and they will keep on happening. It is healthy for the market. There are two major advantages of selling: One, you have money available to buy fresh and second, since there is always reason for the market to go down, you will be able to capitalise instantly. These days the market takes negative news positively and vice-versa. For example, last week when lower-than-expected inflation numbers came up, the market did not react at all. Even if the market goes up, it will be due to results of certain sectors and those particular sectors will see a rally. I don’t think there will be any broad-based movement. So book profits whenever you can.

N K Sharma
CEO, IL & FS MF
It doesn’t look like he (the retail investor) should sell. The only two things that can give (rising) markets a cold are oil prices and hardening interest rates. But if the interest rates remain soft and there is enough liquidity, I don’t think it is time to sell. Yes, of course if you are looking at short-term investors who want to book profits, they may sell. The fundamentals are strong and the tech sector is back with a vengeance, the story looks very good from here on. Even the government has clarified its stand on PSU disinvestment, something that triggered the fall last time, so I don’t see any reason why one should sell. Though no one is yet rebalancing portfolios, this is the time to balance the portfolio in favour of equity.

S V Prasad CEO, Birla MF
The markets are rising. So I think it’s a good time to book profits. As the long-term capital tax is zero, I think this is a fair time to book profits. There are concerns, like the oil prices, the US elections or the inflation, so why not book profits?