When is right selling time?

There are several factors to consider before jumping from a well-performing stock. FILE PHOTO | NMG 

By RUFUS MWANYASI

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Summary

• Ignoring the market’s ups and downs entirely and remaining patient for a period lasting more than five years should reward you immensely.

If the present market was a house, they’ll be a sign on the door reading: please don’t disturb this groove.

This is for the stock market, which is clearly having one of its strongest showing in four years. The All-Share Index (NASI) is up 9.2 per cent year-to-date compared to 2.1 per cent booked in the same period last year.

Certainly better than 2.73 per cent in 2016, 5.55 per cent in 2015 and 4.33 per cent in 2014 bagged in the same time. Since the start of 2016, shares are up some 47 per cent.

That means that if you’ve been in the market throughout this time, you are likely to be perching on a mountain of profits.

But here’s the question: should you stay where you are and hope for further gains, or is it time to declare victory and move your money to a safer ground? That’s an eternal question but the answer depends on several factors.

One, your risk appetite. Investors need to remember that a rising, fun-to-trade market could easily turn ugly if the economy slows or when rates begin to climb up, to name just two risks.

Considering markets have been going up for 13 consecutive months, this may have lulled some investors into a false sense of security.

But the reality is that price corrections are part of the game. In fact, a minor retracement is already underway following the March madness - investors scrambling to have their names in the dividend register.

Question is; would you be comfortable giving up some gains albeit temporarily? If not, any drawdowns present a God-given opportunity to further groom your portfolio positions.

If, however, the fear of losing keeps you awake at night, then it may be prudent to liquidate a portion of your portfolio, congratulating yourself on your gains.

Two, your investment horizon. Are you a long-term investor or a short-termer? For the former, any short term retracements should be treated as a little blip.

READ: Market terms are right for long-term investors

Ignoring the market’s ups and downs entirely and remaining patient for a period lasting more than five years should reward you immensely.

For the latter, an exit now means an opportunity for lower re-entries at some point in the near future or time to redirect your investments in a more lower risk-lower reward investment.

Three, the macro environment. If one believes the polite monetary policy, benign inflation and a stable currency world will still be a reality in the foreseeable future, then a risk-on attitude is well advised.

More stocks and less on bonds. If not, then a risk-off strategy is the better option. Let’s call it re-balancing.

Overall, things are more interesting now. There’s clearly a change in investor psyche. Opportunities are tremendous and shares have become a little easier to navigate.

Plus the NASI just broke through a major resistance at 176.9 points in January (established on February 2015) indicating more bullish power.

Surely it makes sense to stay involved in the stock market and to be positioned that it will rise a lot further. The groove is still on.