There can be many compelling reasons why you shouldn’t sell your stocks.
But a market rally often triggers a different set of anxieties, and investors find themselves asking questions like “Should I take my profits now?” or “Should I sell now before the market turns?”
Making decisions in times like these, which are usually emotional in nature, frequently leads to mistakes.
However, investors can navigate these periods by adopting a disciplined approach.
Why Selling Decisions Are So Difficult
Psychological factors often come into play when an investor considers selling, particularly when they are in a “winning” position.
Regret aversion plays a major role here; investors fear missing out on further gains if the stock continues to climb.
Conversely, some may hold losing positions for longer than they should, reluctant to admit a mistake and accept a loss.
These internal conflicts often derail long-term investment goals.
Furthermore, the tendency to overreact to day-to-day market volatility can trigger impulsive selling during temporary downturns and panic-buying fuelled by market hype.
To counter these issues, having a clear, predefined investment framework is essential.
It removes emotion from decision-making and allows for more consistent and objective selling choices.
Question #1: Has the Investment Thesis Changed?
When investors first buy a stock, it is usually based on a specific belief regarding the company’s future.
This investment thesis might include expectations of high growth, confidence in management, or the promise of reliable dividends.
These factors form the foundation for deciding whether a stock still deserves a place in your portfolio.
For example, an income investor might hold a stable payer like Singapore Exchange Limited (SGX: S68), or SGX, which has consistently paid dividends since its listing.
If SGX were to stop these payouts, this investor might consider selling the stock as the original thesis no longer holds true.
Regularly monitoring earnings, competitive positioning, and industry developments helps investors revalidate whether their thesis is still intact.
Question #2: Has the Valuation Become Excessive?
Selling may be necessary if the valuation of a stock’s price becomes disconnected from its intrinsic value, increasing the risk of a sharp correction.
There are several signs investors can watch out for.
When stock prices rise significantly faster than underlying earnings growth, it can indicate that expectations are overly optimistic.
A price-to-earnings (P/E) ratio sitting far above its long-term average may also suggest overvaluation.
Take Singapore Technologies Engineering Ltd (SGX: S63) as a recent example.
On 23 March 2026, it traded near its recent record highs at S$10.71 with a trailing twelve months (TTM) P/E of 74.8.
Even with a next twelve months (NTM) P/E of 33.3, such a premium may signal overvaluation.
In a situation like this, trimming a position to lock in profits ensures you maintain portfolio discipline rather than riding a bubble.
Question #3: Is There a Better Opportunity Elsewhere?
Capital is finite, and every investment decision carries an opportunity cost.
Even if a stock you are currently holding is performing well, it may no longer be the most efficient use of your money if a new opportunity offers higher risk-adjusted returns.
In this context, selling is not just about avoiding losses or taking gains, but about optimising where your money can work the hardest.
You might exit a position to rebalance your diversification or to fund a clearly better investment.
That said, investors should proceed with caution: you are investing, not trading.
Constantly switching positions can lead to over-trading, increased transaction costs, and ultimately, poorer performance.
Common Selling Mistakes Investors Make
Selling without fully understanding the market situation can result in selling winners too early and losing out on future gains.
Similarly, holding losing stocks purely out of hope may result in losses.
Chasing short-term trends and getting distracted by market noise rather than holding onto solid compounders may negatively impact your long-term performance.
Maintain your focus on business execution rather than market sentiment.
In the end, holding onto a stock blindly without re-evaluating its fundamentals is just as risky as selling too soon.
Get Smart: Ask The Right Questions
Selling decisions should never be driven by emotional impulses or temporary volatility.
By consistently asking these three questions, investors can make disciplined decisions that can improve their long-term results.
Experienced investors don’t overreact to the noise of a fluctuating ticker.
Instead, they maintain a long-term perspective, and keep the focus on a company’s intrinsic value and its ability to deliver results over time.
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Disclosure: Wenting A. does not own any stock mentioned.
