ALWAYS HAVE A TARGET PRICE WHEN YOU BUY STOCKS
When you buy a stock, did you know that you should always have a target price in your mind for when you are going to sell it? Too many people just go out and buy their stocks without a plan. They buy because a friend recommended it, because they like the company and the product, or because they heard some stock picker recommend it on television.
Part of learning how to buy stocks is learning when to sell them. After all, it is unlikely you are going to want to keep your stocks for the rest of your life and so selling them is a big part of the picture.
I have always said that for me, figuring out when to sell a stock is the hardest decision I have to make. If I have a gain, I naturally want a bigger gain and the only way I can get that is by holding on. Additionally I hate selling a stock with a gain only to have it continue to keep going up.
Likewise, if a stock is doing poorly, you always have the decision of when to sell and if to sell the stock at all. When do you cut bait and get out or do you just stay in? Maybe just holding on will see a reversal of the stock price.
Having a target price when you buy a stock is one of the ways that makes the selling decision easier. If you buy a stock at 50 and tell yourself that the target price is 70, your decision is made a little easier if it does get to 70. At that point you can decide to take some off the table but keep some shares, sell everything, or keep everything hoping it will go higher. Of course a good understanding of the business the company is in and some other fundamentals may sway your decision on way or another.
How do you come up with a target price before you but a stock? Stock analysts are trained for this type of thing and it is their business to pick stocks and target prices bases on hundreds of factors. For an average investor who has no experience in that sort of thing though, that would be impossible. Most investors get target prices from their brokers, from magazine articles, television programs, and radio shows. Yes, most people would have to decide on a target price based on the what they heard an analyst give or recommend.
When you buy a stock with no target price in mind, how do you ever decide when it is the right time to sell the stock? If it goes up 10 points, you have no concept whether that is good enough or just a small percentage of what it might do. It is sort of like you are flying blind. You need to have a plan for what you will do with each stock before you buy.
Having a plan in place for every stock you buy should include one for if it goes down as well. If you buy a stock at 100 and it goes to 90, should you sell? What about 80? These plans you might loosely have in your head can change as the economy changes and different factors around the company change. The plan you have at the start when you are first buying the stock may have to change as circumstances change. But at least with a plan and a target price, you have a loosely formed guideline to proceed within.
