When to Buy - and When to Sell
Knowing what to buy is only half the job. Equally important - and often harder - is when.
When to Buy
1. When You Have a Clear Thesis Don't buy because a stock is rising or because someone recommended it. Buy when you can articulate in 2-3 sentences *why this business will be worth more in 3-5 years* than it is today.
2. When Price Is at or Below Your Estimated Fair Value Build in a **margin of safety** - buy at a discount to what you believe it's worth. If your fair value estimate is ₹500, aim to pay ₹350-400. This cushions against errors in your analysis.
3. When Macro Fear Creates Opportunity Market crashes, sector selloffs, and earnings misses based on short-term issues often punish good businesses unfairly. These are buying opportunities for patient investors.
When to Sell
Selling is harder than buying because of emotional attachment and tax implications. Have rules.
| Sell Signal | What It Means |
|---|---|
| Thesis broken | The reason you bought no longer holds - management fraud, permanent market share loss, regulatory ban |
| Significant overvaluation | Stock has run so far above fair value that risk/reward is unattractive |
| Better opportunity | You've found something clearly superior for the same capital |
| Position sizing | A position has grown to >15-20% of portfolio - trim to manage concentration |
What Not to Do
- •Don't sell on panic - if your thesis is intact, price drops are buying opportunities
- •Don't hold just because you're down - sunk cost is irrelevant; only future prospects matter
- •Don't trade in and out - transaction costs and taxes destroy long-term returns
The Simplest Rule
Buy when you'd be comfortable holding through a 30% decline. Sell when the reason you bought is gone - not because the price is down.
Key Takeaways
- •Buy with a thesis, a price target, and a margin of safety
- •Sell when the thesis breaks, not when the price drops
- •Inaction is often the highest-returning decision