When people talk about “playing” the stocks and shares market, they don’t really mean that they’re playing. Trading in stocks and shares is a serious business, and one where one wrong move can devastate your whole portfolio. That’s why it always makes sense to use the services of a professional adviser rather than going it alone – unless you just so happen to be a financial services professional yourself! The key word in all of this is ‘trading,’ though. To make big money in the stocks and shares market, you need to engage in the occasional bout of buying and selling. Buying up stocks and holding onto them for years generally isn’t the way to make money quickly.
The idea of letting go of something that’s performing well can be a little daunting. In fact, it can feel more like gambling. The whole point of funneling money into an online slots game is that you’re hoping to get more money out than you’ve put in, but you’d generally only spend a few dollars at a time at an online slots website . With stocks and shares, we could be talking about thousands. If you empty your bankroll playing online slots, it’s a frustrating experience, but it doesn’t tend to be life-changing. Lose everything you’ve invested in stocks on a bad investment decision, and you could end up in serious financial jeopardy.
With the above in mind, we understand why some people play the long game and hold onto stocks for years at a time, but there are times when it might be more prudent to make a change. Here are a few examples of times when you may want to think about it.
A Change In Ownership
We like to think that whoever’s put in charge of a large, profitable business has earned their position through a long track record of success and reliability. That isn’t always the case. There are countless examples of bad CEOs who’ve bankrupted the companies they were trusted to run, and that list will never stop growing. If a company you’ve invested in has been performing well, but there’s a change in the ownership or leadership of that company, take the time to find out everything you can about the new person in charge. Fortunes can change very quickly if that new person comes in and makes poor decisions, and the value of your investment can nosedive before you get a chance to pull out. Changes in leadership lead to periods of instability, and instability is rarely a good thing in the markets.
You Don’t Understand What You’ve Invested In
You’re not expected to understand the ins and outs of the stock market in their entirety. That’s what financial advisers are for, and that’s what you pay them to do. It is essential to gain at least a basic understanding of where your money is, though, and what kind of industry the company you’ve invested in does. There’s a lot of ignorance out there, and it’s worrying. According to some statistics, half of all Americans don’t even know how to diversify their investments, let alone how to monitor performance. It’s imperative that you understand what the companies you’ve invested in do, because that way you’ll know what might affect their performance if, for example, there’s a change in regulation, a new competitor on the block, or a new form of technology that makes what the company does obsolete. A good financial adviser ought to keep you abreast of these issues, but being able to spot them yourself means you can act faster. If you don’t feel like you know enough to do that, consider moving to a stock that’s easier to understand.
The Stock Is Overvalued
One of the easiest mistakes you could make when you’re trading stocks is to believe that any rise in price is a good thing. There are exceptions to the statement we’re about to make, but generally speaking, a slow, steady rise in value is a better sign than a sudden jump. Sharp rises in stock value often occur because the market is expecting an announcement, a new product, or a specific behavior from the company in question. The stock becomes overpriced and then drops away just as sharply after the expected event happens. When a stock shoots up fast, that might be the best price you’re ever likely to get for it, and it’s a good time to cash in. Don’t do so without taking professional advice, but the opportunity may never come again. Also, be wary of a stock price that’s significantly higher than the stock of any other company working in the same industry – that’s also a tell-tale sign of overpricing. Where overpricing exists, a fall will eventually follow.
You Need The Money Right Now
We’re aware that this behavior goes on, but we’ll never understand it. When people find themselves in short term financial distress, they may consider doing a number of things. They might take on new credit cards or loans, borrow from family, or sell something to bring cash into their home. They might even take a second job. What many people are reluctant to do is to cash in on their stocks and shares because, in their minds, that’s ‘money for a rainy day.’ That rainy day might never come. If you need money right now, and you have the ability to withdraw it from a stock holding, the easiest answer to your problems might be just to go ahead and do it. You don’t know how that stock will perform in the future, or if it will ever make you rich. You do, however, know that you need cash right now, and the money will make a material difference to your life. If you need it, take it. Again, as with everything we’re suggesting here, we recommend that you speak to your adviser first, but don’t hold out on yourself if your quality of life is suffering.
There’s a lot to be said for being cautious when it comes to investments, and we’d never suggest rash behavior of any kind when it comes to money. There is such a thing for being too cautious, though, and if you’re too cautious, you might lose out on more than you make. Keep track of changes at the companies you invest in. Ensure you understand the nature of your holdings. Beware of price surges, and get out if you need the money in your hand. That’s advice that every investor ought to live by.