It’s easy to feel unsettled when share prices take a tumble. Maybe your portfolio is a little in the red, or a specific stock has been underperforming. Before you panic-sell, remember – market dips are normal. Historically, stocks climb over time, and selling low can be costly. Here, you can learn how to make smart selling decisions.

Maybe your shares are worth less than you paid for them. Or perhaps they’ve gone up a lot, and you’re worried about missing out on profits. It’s a tough call. Even famous investors find it almost impossible to time the market perfectly. But there are some things you can do to help you make better decisions.

Don’t let your emotions be the boss

It's easy to get caught up in the excitement or fear of the stock market. But your emotions can be a bad guide to investing.

To make the most out of investing, patience is key. The longer you hold your investments, the better your chances of seeing them grow. That means ignoring the day-to-day ups and downs. Aim to hold your investments for at least five years, ideally longer.

Historically, the stock market has tended to climb over time. So, while it's normal to worry when things look shaky, try to keep a long-term perspective. Remember why you invested in the first place. This can help you avoid hasty decisions.

Diversification is also a key principle of successful investing – and it means spreading your investments across different assets to reduce risk. Think of it as not putting all your eggs in one basket. By investing in a mix of shares and bonds, and investment funds from various industries and countries, you can protect your portfolio from big losses if one single investment struggles. Concentrating your investments in just a few single company shares can be risky.

Of course, it’s important to note here that if you’re ever unsure about what to do with your investments, it’s always wise to seek professional financial advice. And that past performance isn’t a guarantee of future results. Share prices can go up or down, and you might lose money (no matter how long you hold on to an investment).

Setting a stop-loss

Another way to manage risk is to set up a stop-loss order. You can do this by instructing your broker to sell your shares if the price drops to a certain level. This can help protect you from big losses.

There are two main types: stop and trailing stop. A stop-loss sells your shares when the price falls to or below a specific price. A trailing stop-loss adjusts as the share price rises.

For example, if you buy a share for $1 and set a stop-loss at $0.90, your order will trigger if the price falls to $0.90. Your shares will then be sold at the price available in the market at the time of execution.

A trailing stop-loss is slightly different. You might instruct us to sell the share if the price fell by $0.10 from the current price of $1 or any higher level it might reach. For instance, if it reached a high of $1.50, any sale would then happen when the price fell back to $1.40 during the time limit of your order.

Ultimately, though, stop-loss orders aren’t foolproof – and can’t guarantee profits.

Spotting overvalued stocks

One other reason to consider selling a share is when you believe its price has become inflated compared to its true worth. However, determining if a stock is genuinely overvalued can be difficult.

A share price rising without matching improvements in earnings might signal an overvalued stock. Other factors like new leadership, industry changes, or new competitors can also affect a stock’s price.

One tool to consider is the price-to-earnings (PE) ratio. This compares a company’s share price to its earnings. A high PE ratio might suggest the stock is overvalued, so it’s worthwhile comparing it to other companies in the same industry.