A useful way to think about selling is to go back to your original reason for buying. (AI image)

Selling is much harder than buying. Buying feels optimistic: you’re starting something new. Selling feels like admitting you were wrong, or that a journey has ended. Because it is emotionally uncomfortable, many investors either sell for the wrong reasons or refuse to sell when they actually should.The first thing we remind ourselves is that a falling price is not, by itself, a reason to sell. The market’s mood swings are not the same as a business’s reality. We’ve seen investors panic out of excellent companies simply because the stock dropped 20-30 per cent in a correction, only to watch it recover and then move far beyond their exit price. Just as often, we’ve seen people hold on to clearly deteriorating businesses because they can’t bear the thought of booking a loss.A useful way to think about selling is to go back to your original reason for buying. When you bought the stock, you hopefully had some idea of what you were paying for: maybe a certain pace of growth, a strong balance sheet, a competitive advantage, or a change in management that you believed would improve things. When the time to sell comes, the real question is: has that original thesis broken down?Consider a stock like Bajaj Finance. Let’s say you bought it around mid 2018 at Rs 275, because you believed the company could grow earnings at more than 20 per cent a year, maintain healthy margins, and keep asset quality clean.

Two years later, the stock has fallen from Rs 275 to Rs 185, a drop of more than 30 per cent. On the surface, it looks like a disaster. But when you check the numbers, you see that earnings have indeed grown close to 45 per cent, margins are intact, and the balance sheet is still clean.

The fall is largely because the market is in the middle of a broad correction.Now imagine a second stock, Vodafone Idea, which you bought at Rs 65 in mid 2016.

Its price has fallen to around Rs 35 two years later. But in this case, the debt has started to get out of hand, margins have collapsed, and management does not have a clear plan to fix things. Here, the problem is not just the market’s mood. The business itself is changing for the worse.In the first case, a fall in price might be a reason to hold or even add, provided the valuation is now more attractive. In the second, it might be a reason to sell even if you have to accept a loss.

The key difference is whether your original reason for owning the stock is still true.When we think about exits at Value Research Stock Advisor, we don’t act just because something is volatile. We look for structural changes: a sustained break in earnings power, a clear deterioration in balance sheet quality, serious governance concerns, or a valuation that has become so stretched that future returns are likely to be poor even if the business does reasonably well.