We often get advised what to buy when it comes to investing, however what about
the opposite, on when to sell.
Selling an investment decision can arise due to various factors. Let me rephrase and
explain each bullet point:
Poor earnings performance: This refers to a decline or underperformance in a
company’s financial results. When a company consistently fails to generate
satisfactory profits or experiences a significant decrease in earnings, investors may
choose to sell their investments in that company.
Negative business outlook: If a company’s future prospects appear gloomy or
uncertain, investors may decide to sell their holdings. This could be due to factors
such as declining market demand, disruptive technologies, regulatory changes, or
other challenges that could negatively impact the company’s operations and
profitability.
Economic uncertainty: When the overall economic environment becomes uncertain,
investors often become cautious. Economic uncertainties could include factors like
inflation, interest rate fluctuations, political instability, or global economic downturns.
These uncertainties may be utilised to sell your investments as a way to mitigate
potential risks and preserve capital.
Intense competition: Strong competition within an industry can erode a company’s
market share and profitability. If a company struggles to compete effectively against
its rivals, investors may sell their investments in anticipation of diminishing returns
and the potential for a decline in the company’s market position.
High valuations: When a company’s stock price becomes significantly overvalued
relative to its fundamental value or industry benchmarks, some investors may opt to
sell their investments. This can occur when market expectations become
disconnected from the underlying financial performance of the company, raising
concerns about a potential market correction.
Failure to maintain competitive advantage (moat): A company’s competitive
advantage, often referred to as its “moat,” can be a crucial factor in its long-term
success. If a company loses its ability to protect its market position and sustain a
competitive edge over time, investors may sell their investments to avoid the
potential negative impact on the company’s future profitability and growth prospects.
Deterioration in corporate governance: Corporate governance encompasses the
practices and structures that guide a company’s decision-making processes and
ensure accountability to shareholders. If there are significant concerns or evidence of
poor corporate governance, such as unethical behavior, conflicts of interest, or lack
of transparency, investors may choose to sell their investments due to the perceived
increased risks and potential negative impact on the company’s performance.