![]() ![]() If I plan on selling in a few weeks, the stock is bound to take a dive. ![]() ![]() It’s almost inevitable: If I sell today, the price is sure to cruise even higher. Honestly, how to know when to sell stocks can be even more ambiguous than knowing when to buy them. Which leads me into my next section… When to Sell Stocks When a company’s value is lower than its current valuation, we sell.When a company’s value (in terms of its financial results, future outlook, and risks) is higher than its current valuation, we buy.Now that we know what makes a great company and how to determine individual stocks’ fair values, it’s time to put them together so we know when is the best time to buy stocks. □ Note: WallStreetZen shows the analyst forecast data on each stock’s ‘Forecast’ tab (here’s TSLA’s analyst forecast data): If you think stock ABC’s revenue will grow at 50% per year for the next 10 years and the market is projecting it to grow at just 15%, you will value ABC much higher and buy as many shares as you can. The higher a company’s potential for growth and the greater its likelihood of achieving that growth, the higher the valuation the stock should trade at. This is why Tesla ( NASDAQ: TSLA) trades at a much higher valuation (88.5x P/E) than Ford ( NYSE: F) (4.2x P/E). Future Outlook – What is the stock’s potential?Ī large part of any stock’s current valuation is investors’ expectations of its future growth. In the context of its growth rate and peer valuations, the P/E of 15x may indicate now is a great time to buy ABC. If, however, it has a P/E of 15x and its revenue and earnings are expected to grow at 50% per year for several years and its peers are trading at P/E ratios of 30x and are only expected to grow at 20% per year, ABC could increase more than threefold before it’s correctly valued. If you see stock ABC has a P/E of 15x, that doesn’t tell you much. Instead, they indicate which companies are being valued either higher or lower than their peers based on the expectations of their future growth. It should be noted: Valuation ratios alone don’t necessarily signal when you should buy a stock or sell a stock. The most common way to value stocks is by using relative valuation ratios, such as the P/E, P/S, P/B, and PEG ratios: Current Valuation – How is the stock priced? Here’s an overview of the 3 categories I look at when evaluating potential investments: 1. What makes a stock’s price “fair” or “better” than fair? Identifying great companies at fair or better prices The article linked above dives into the specifics and tactical-side of these points (and how WallStreetZen can help you all along the way), but I’ll add some additional context here. When companies meet those 2 criteria, that’s the best time to buy stocks. The long-and-short of when to invest in stocks is two-fold: Read more: How to Know What Stocks to Buy I’ve already written an article on how to know what stocks to buy that covers the investment strategy I follow, value investing: If you like what I have to say, thank them, not me. These aren’t my own rules – I’ve got them from reading every book I can get my hands on about legendary investors like Warren Buffett, Benjamin Graham, and Peter Lynch. If you were to ask me about my investing style and how I determine when to buy and when to sell stocks, I would share these general rules of thumb. The good news is the more time you spend buying and selling stocks the better you’ll become at knowing when you should. The truth is, there’s no way to know for sure when is the best time to buy stocks or when is the best time to sell stocks – investing is as much art as it is science. Those are pretty big issues, given that how to know when to buy and sell stocks is the entirety of the investing process. Commissions do not affect the opinions or evaluations of our editorial team. Our company, WallStreetZen Limited, is supported by our user community and may receive a small commission when purchases are made through partner links. Our editorial team uses a strict editorial review process to compile all reviews, research, and evaluations of any kind. ![]()
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