When To Sell/Exit a position in Stock

When To Sell/Exit a position in Stock

Most retail investors follow suit as the #fiisย continue to sell-off in theย #Indianequitiesย markets. Though FIIs have reasons to sell, r๐ž๐ญ๐š๐ข๐ฅ ๐ข๐ง๐ฏ๐ž๐ฌ๐ญ๐จ๐ซ๐ฌ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ฌ๐ž๐ฅ๐ฅ ๐š ๐ฌ๐ญ๐จ๐œ๐ค ๐จ๐ง๐ฅ๐ฒ ๐ฐ๐ก๐ž๐ง ๐ญ๐ก๐ž๐ฒ ๐Ÿ๐ž๐ž๐ฅ ๐ญ๐ก๐ž๐ข๐ซ ๐ข๐ง๐ฏ๐ž๐ฌ๐ญ๐ฆ๐ž๐ง๐ญ ๐ก๐š๐ฌ ๐ซ๐ž๐š๐œ๐ก๐ž๐ ๐ข๐ญ๐ฌ ๐ž๐ฑ๐ฉ๐ž๐œ๐ญ๐ž๐ ๐ฏ๐š๐ฅ๐ฎ๐ž; ๐ญ๐ก๐ž๐ฒ ๐ก๐š๐ฏ๐ž ๐›๐ž๐ญ๐ญ๐ž๐ซ ๐จ๐ฉ๐ฉ๐จ๐ซ๐ญ๐ฎ๐ง๐ข๐ญ๐ข๐ž๐ฌ ๐ญ๐จ ๐ข๐ง๐ฏ๐ž๐ฌ๐ญ, ๐จ๐ซ ๐ญ๐ก๐ž๐ข๐ซ ๐ฌ๐ญ๐จ๐œ๐ค ๐ž๐ฑ๐ฉ๐ž๐œ๐ญ๐š๐ญ๐ข๐จ๐ง๐ฌ ๐ก๐š๐ฏ๐ž ๐œ๐ก๐š๐ง๐ ๐ž๐ ๐ง๐ž๐ ๐š๐ญ๐ข๐ฏ๐ž๐ฅ๐ฒ.

A good stock picker does three things very well:

1)When to buy a stock

2)When to sell a stock

3)Defer taxes

For instance, a retail investor boughtย Infosysย stock in June 2020 for 748/share. The cost of equity for Infy is 9%.

In June 2021, Infy’s stock price = 1446.9, giving an excess return of 84%. Despite Infy trading at 52 week low, the excess return is 27.2%.

If a retail investor sells Infy stock because of negative sentiment, he has to pay an LTCG of 10% or 63.93. When the retail investors reinvest these proceeds (1387-748-63.93=575.37) by buying another stock, it has to get an expected return of ~18% (9% cost of equity + 8.5% LTCG), which is difficult in this environment.

Thus, in my view, it is ๐™—๐™š๐™ฉ๐™ฉ๐™š๐™ง ๐™ฉ๐™ค ๐™๐™ค๐™ก๐™™ ๐™š๐™ญ๐™ž๐™จ๐™ฉ๐™ž๐™ฃ๐™œ ๐™จ๐™ฉ๐™ค๐™˜๐™  ๐™ฉ๐™๐™–๐™ฃ ๐™จ๐™š๐™ก๐™ก ๐™ž๐™ฉ ๐™ž๐™ฃ ๐™›๐™–๐™ซ๐™ค๐™ช๐™ง ๐™ค๐™› ๐™—๐™ช๐™ฎ๐™ž๐™ฃ๐™œ ๐™–๐™ฃ๐™ค๐™ฉ๐™๐™š๐™ง ๐™จ๐™ฉ๐™ค๐™˜๐™  ๐™ช๐™ฃ๐™ก๐™š๐™จ๐™จ ๐™ฉ๐™๐™š ๐™š๐™ญ๐™ฅ๐™š๐™˜๐™ฉ๐™š๐™™ ๐™ง๐™š๐™ฉ๐™ช๐™ง๐™ฃ๐™จ ๐™ž๐™ฃ ๐™ž๐™ฃ๐™ซ๐™š๐™จ๐™ฉ๐™ž๐™ฃ๐™œ ๐™ž๐™ฃ ๐™ฃ๐™š๐™ฌ ๐™จ๐™ฉ๐™ค๐™˜๐™  ๐™š๐™ญ๐™˜๐™š๐™š๐™™ ๐™ฉ๐™๐™š ๐™˜๐™ค๐™จ๐™ฉ ๐™ค๐™› ๐™š๐™ฆ๐™ช๐™ž๐™ฉ๐™ฎ ๐™–๐™ฃ๐™™ ๐™‡๐™๐˜พ๐™‚.



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