I agree that technical analysis can serve as a useful leading indicator for potential upside or downside when making buy or sell decisions. However, its impact may be limited for someone whose default behavior is to hold onto stocks unless a fundamental issue arises. That said, I do acknowledge that price and volume movements can sometimes reveal underlying fundamental problems before they become apparent to most investors. Therefore, learning technical analysis is on my to-do list.
Regarding your second question, the decision to sell depends entirely on the nature of the issue with the company. A recent experience with Aditya Vision taught me a valuable lesson about being cautious in reacting to market news. I came across a Twitter thread alleging accounting malpractices in the company. Without verifying the information or waiting for management’s commentary, I impulsively sold 80% of my holdings. Today, the stock is trading at three times the price at which I sold it, and the news turned out to be a hoax spread by an anonymous account. This mistake has made me more reluctant to sell quickly.
In my view, most stocks go through turbulent periods, including depressed earnings and unfavorable macroeconomic conditions. These challenges alone do not warrant selling. I approach this like a doctor diagnosing a company’s “illness.” If the issue is temporary, such as a few bad quarters, rising raw material costs, changes in key management personnel, or unfavorable macro conditions, I hold. If the issue appears to be chronic—persistent underperformance, consistent mismatches between guidance and outcomes—I reduce my exposure or exit the position entirely, depending on the severity. However, if the problem is terminal, such as a lack of management integrity, a permanent change in the business’s economics, or a maturing business with little growth potential, I sell outright. My experience with Yes Bank, where I sold as soon as I questioned management’s integrity, saved me from a 90% capital erosion.
There is one exception to my reluctance to sell. If I identify an opportunity that is significantly superior to my current holdings (emphasis on “significantly”), I am inclined to sell. Conviction in a new stock takes time to build, and a new investment, no matter how promising, will likely lack the conviction I have for a stock I’ve monitored for years. Moreover, selling a stock incurs capital gains tax (currently at 12.5%), which adds to the switching cost. However, if the new stock justifies it, I won’t hesitate to make the move.
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