when should I sell a stock

There are four legitimate reasons to sell: the thesis broke and the specific thing you wrote down as disproof happened, the stock became substantially overvalued, you found something clearly better for finite capital, or the position outgrew your risk tolerance. Notice that "it went down" is not on the list — the price you paid tells you nothing about the company’s future.

A thesis break is when the specific thing you identified in advance as proof you were wrong actually happens — the moat erodes, the largest client leaves, margins collapse structurally, or governance turns out worse than you judged. It is the cleanest reason to sell there is, and being able to recognise it is the whole point of writing the thesis down before you buy.

what is the LTCG tax on shares in India

Long-term capital gains on listed equity — shares held for more than a year — are taxed at 12.5% on gains above a ₹1,25,000 exemption in a financial year, as of 2026. Below that annual threshold the long-term gains are not taxed. Tax should inform the timing of a sell decision but never drive it, since a broken thesis is a reason to sell regardless of the bill.

difference between LTCG and STCG on shares

For listed equity the split is the holding period: gains on shares held more than a year are long-term and taxed at 12.5% above a ₹1,25,000 annual exemption, while gains on shares held a year or less are short-term and taxed at 20%, as of 2026. The higher short-term rate is one reason a longer holding period can be more tax-efficient, though it should never be the sole reason to hold or sell.

When to sell · Market Vidyalaya

Every investor has a buying process. Very few have a selling process. The result is a portfolio shaped not by decisions but by inertia — winners sold early because a gain felt good, losers held indefinitely because a loss felt bad.

The four legitimate reasons to sell

1
1. The thesis broke
The specific thing you wrote down as disproof has happened. The moat eroded, the top client left, margins collapsed structurally, governance turned out to be worse than you thought. This is the cleanest sell there is, and it is why you wrote the thesis in the first place.
2
2. It became substantially overvalued
Not merely "up a lot" — genuinely priced for outcomes that would require heroic assumptions. Run the reverse DCF: if the current price now needs 30% growth for fifteen years, the market has done your job for you.
3
3. You found something clearly better
Capital is finite. Selling a fairly-valued good business to buy a substantially undervalued great one is rational — provided you are honest that the new idea is genuinely better and not merely newer and more exciting.
4
4. The position outgrew your risk tolerance
A holding that compounded from 8% of your portfolio to 34% is now a concentration decision you never consciously made. Trimming is prudent — but trim for risk, never simply because the number is large.

The bad reasons, and why each is tempting

Sounds sensible

"It’s up 40%, let me book profits."
"It’s down 25%, I’ll exit and re-enter lower."
"It hasn’t moved in a year."
"The market looks toppy."

What it actually is

Selling your winners — the disposition effect. The compounders are precisely the ones to keep.
A plan requiring you to be right twice. Most people never re-enter.
Impatience. Sideways periods are where most of the eventual return is set up.
Market timing, dressed as prudence. Nobody does this reliably.

Selling a falling stock, honestly

The genuinely hard case is a stock down 40% where the thesis is partly damaged. There is no formula, but three questions cut through most of it.

Has the business deteriorated, or only the price? A stock falling because the whole market fell is a different situation from one falling because its largest customer left. Separate the two before doing anything.
Would I buy it here? If yes, hold or add. If no, sell. There is no third answer that is not simply avoidance.
What is this capital doing? Dead money in a broken thesis has an opportunity cost. Holding a stock for four years waiting to "get back to break-even" while an index fund compounds is a real, measurable loss that never appears on any statement.

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Tax-aware selling in India

Consideration	What to do
Holding just under 12 months	If the thesis is intact, waiting a few weeks moves you from 20% STCG to 12.5% LTCG. On a large gain that is material.
Annual LTCG exemption	The first ₹1.25 lakh of long-term gains each financial year is exempt. Many investors deliberately harvest gains up to that limit annually.
Loss harvesting	Realised losses can be set off against gains. Booking a loss you were going to take anyway before the financial year ends reduces your tax bill.
The overriding rule	Never let tax keep you in a broken business. A 20% tax on a gain is far cheaper than a 60% fall while you wait for a date on the calendar.

Check yourself

You hold a company up 180% over four years. It is now 31% of your portfolio, business quality is unchanged, but the reverse DCF says the price requires 26% growth for twelve years. What is the reasonable action?

Simple bhasha mein

Utarne ka stop pehle tay karo

Bus mein baithte waqt hi pata hota hai ki kahan utarna hai. Beech raste mein bheed aur shor mein faisla karoge toh ya toh jaldi utar jaoge ya station nikal jaayega. Bechne ki wajah khareedte waqt likh lo — us waqt aap shaant ho, baad mein nahi rahoge.

What to remember

"Would I buy this today if I owned none?" resolves most selling decisions.
Four legitimate reasons: thesis broke, genuinely overvalued, clearly better idea, position outgrew your risk tolerance.
"Booking profits" on winners is how people guarantee they never hold a compounder.
Dead capital in a broken thesis has a real opportunity cost that never shows on a statement.
Write the sell conditions into the thesis at purchase, while you are calm.

You reached the endMark it done and keep your streak going.

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Common questions

Short, direct answers to what people ask about this topic.

when should I sell a stock: There are four legitimate reasons to sell: the thesis broke and the specific thing you wrote down as disproof happened, the stock became substantially overvalued, you found something clearly better for finite capital, or the position outgrew your risk tolerance. Notice that "it went down" is not on the list — the price you paid tells you nothing about the company’s future.
thesis break meaning: A thesis break is when the specific thing you identified in advance as proof you were wrong actually happens — the moat erodes, the largest client leaves, margins collapse structurally, or governance turns out worse than you judged. It is the cleanest reason to sell there is, and being able to recognise it is the whole point of writing the thesis down before you buy.
what is the LTCG tax on shares in India: Long-term capital gains on listed equity — shares held for more than a year — are taxed at 12.5% on gains above a ₹1,25,000 exemption in a financial year, as of 2026. Below that annual threshold the long-term gains are not taxed. Tax should inform the timing of a sell decision but never drive it, since a broken thesis is a reason to sell regardless of the bill.
difference between LTCG and STCG on shares: For listed equity the split is the holding period: gains on shares held more than a year are long-term and taxed at 12.5% above a ₹1,25,000 annual exemption, while gains on shares held a year or less are short-term and taxed at 20%, as of 2026. The higher short-term rate is one reason a longer holding period can be more tax-efficient, though it should never be the sole reason to hold or sell.