When you buy a share, you normally buy to sell the share at a higher price, thus making a profit. However in most cases you may not have a clear target price. This means you need to have a matrix of when to sell a particular share -either time based, p/e based, or price based.

Let us see why you should sell a share:

1. You do not know why you bought it: If you do not maintain an investment diary, the chances are you forgot why you bought a particular share. Look at it afresh. Will you buy it TODAY? at that price? If yes keep it. If no, sell it.

2. It has reached YOUR target: FMCG companies have gone up as much as 60% in the past one year. Many Mncs are at the top of their valuation because of the SEBI rule on listing requirement. If they have met YOUR target sell.

3. Change in the companies business: If you had bought a company’s share for a particular business, and that business has been sold off – you have to get rid of that share.

4. Change in YOUR portfolio: You have 15 companies in your portfolio. Of this 5 are from one group..if you want to add one more company from that group, it may impact your balance. For e.g. to add Shanti Gears to my portfolio I had to sell Coromandel International or my exposure to Murugappa group was getting too high. Similarly if there is too much concentration of one industry (for me Madras Cement and Kajaria Ceramics are one industry at a broad level).

5. When you do not trust the management any longer: Some companies keep talking but do not deliver value. Crest Animation is top of mind recall, of course there are others too. Look at Jupiter Bio, GMR, …some of the other names with whom I do business so will not mention (oops vested interest).

6. When you do not trust the management (part 2): when you know as a vendor, friend, employee what is happening, be careful. We tend to judge WRONGLY when we are too close to the subject being judged. We are either too lenient or too harsh. YOU have to judge it with a balance. There is a huge company in the sensex for whom i have no respect. Market has tons of respect. I clearly respect the market – and will hold the shares – even though I keep pruning the size.

7. Better opportunities elsewhere: Obviously all of us have a limited amount of resources, so it you think ‘A’ share will do better than ‘B’ share, you have to sell B and buy A. The sooner you forget what you did, the better, because if A falls and B goes up you will bite yourself 🙂

8. You turned Jain! – suddenly you question yourself – ‘am i aiding in the spread of misery in the world and turn philosophical in your investing. I know many friends who will not touch a McDowell, ITC, etc. They are just dead against alcohol and tobacco. No value judgements, but yes this could be a reason to sell.

9. You need money for a particular goal: buying a house, buying a car, making a foreign trip, daughter’s marriage……of course you HAVE to sell….

more to follow? not sure