Knowing when to sell a stock: Key signals investors shouldn't ignore (Part 2)
Among investment decisions, knowing when to sell a stock is often the most challenging. If you've read Part 1 of this story, you already know that selling isn't just about booking profits, rather, it's about protecting capital.
We previously discussed what to do when a stock becomes too expensive, when business momentum slows, and when governance red flags begin to emerge. But sometimes, the risk lies outside the company.
Sometimes, even the best-run businesses can become bad bets if their industry is in decline or if you hold on too long without re-evaluating.
In this second part, we look beyond the balance sheet and ask: Is the company still playing a winnable game? And if not, is it time to let go?
1. When the industry changes: Don't let a good business turn into a bad investment
Sometimes, the problem isn't with the company. The business might be well-run and the balance sheet clean, but if the entire industry is heading in the wrong direction, even great businesses can lose relevance.
Think of this as the 'Blockbuster vs Netflix' problem. Only in our case, it's Kodak vs smartphones, or Hindustan Motors vs Maruti.
Let's look at how this plays out in India.
Dish TV and the Fall of DTH
In the 2000s, Dish TV was a disruptor. Millions of Indians were moving from cable to satellite TV. The stock multiplied between 2007 and 2010, riding the wave of digital adoption.
But by 2015, another wave was quietly building that was streaming. YouTube, Hotstar, Netflix, Amazon Prime; all started eating into traditional DTH.
Dish TV didn't pivot. Revenues flattened, subscribers dropped, and the company turned loss-making by FY20.
The stock fell from Rs 110 in 2010 to around Rs 15 by 2023. A long, painful fade, not a sudden crash.
Another example is Hero MotoCorp.
India's undisputed two-wheeler king: strong brand, rural reach, bulletproof finances. But while competitors like Ather, Ola Electric, and TVS moved aggressively into electric scooters, Hero remained slow and cautious.
Hero's legacy ICE models (Splendor, Passion) still sell, but the long-term question remains: can Hero lead the EV transition?
The market has noticed:
Infrastructure and power companies in the post-2008 era
Remember GVK Power, GMR Infra, or Lanco Infratech? They were darlings of the infrastructure boom from 2005 to 2009. But post-global financial crisis, the debt cycle turned vicious. Regulatory hurdles, stuck projects, and land acquisition delays choked growth.
By the time promoters tried to pivot or restructure, it was too late.
Today, many of these companies are either penny stocks or delisted. Investors who didn't exit early kept holding out in the hope and lost everything.
So how do you identify a dying or disrupted sector?
Low innovation and flat revenue across top players: If the entire sector isn't growing, there's no tide to lift any boats.
New entrants grabbing market share with better tech or models: Think of fintechs eating into NBFCs, or startups challenging legacy media.
Heavy government regulation or policy shocks: Sectors like telecom and infra are especially vulnerable. One spectrum pricing policy or land bill can derail years of planning.
Global trends moving in a different direction: For example, the shift away from fossil fuels is affecting traditional oil refiners and coal-based utilities.
The mindset shift?
Markets evolve. Technology leapfrogs. Policies change. Consumer habits shift.
If you're holding a stock in a sector that's going downhill, ask yourself: Is the company fighting the tide or riding it?
2. The 'hold forever' myth: Even great companies can lose their edge
We've all heard it: 'Buy good companies and hold forever.'
Sounds elegant. Feels wise. But here's the truth: in real-world investing, 'forever' is a dangerous word. Because businesses evolve. So do industries, leadership, regulations, and consumer behavior. And if you don't reassess your holdings regularly, time can erode even the strongest fundamentals.
Let's go back a few decades.
Hindustan Motors: From market leader to market exit
At one point, Hindustan Motors was India's largest carmaker.
The Ambassador was a symbol of power, comfort, and status used by government officials, bureaucrats, and taxi fleets.
But then Maruti Suzuki entered the market.
It brought Japanese reliability, fuel efficiency, and aggressive pricing.
Hindustan Motors didn't adapt, and by 2014, it shut down its Uttarpara plant. From a position of dominance, it disappeared.
Investors who bought in the 1990s and held out of nostalgia or blind belief watched their capital evaporate.
Original Sensex members: Only 7 out of 30 survived
When the BSE Sensex was launched in 1986, it had 30 companies. Today, only 7 of those 30 remain in the index. Companies like Ballarpur Industries, Premier Automobiles, Mukand Iron, and Scindia Steamships — all were once blue-chip.
Now? Either defunct, delisted, or barely trading.
If you had invested Rs 10,000 in the 'wrong half' of that original Sensex and held on blindly, you'd be left with scraps or nothing.
Global example: IBM, Xerox, Kodak
Zooming out, the same lesson applies globally:
The problem wasn't incompetence. It was inertia and the inability to change fast enough.
So, what should retail investors learn?
Don't confuse a good company with a permanent investment. Even industry leaders lose steam if they don't innovate or adapt. Always watch for product stagnation, competitive pressure, or market shifts.
Review your holdings at least once a year. Ask yourself: 'If I didn't already own this stock, would I buy it today?' If the answer is no, maybe it's time to sell.
Cut emotional attachment. Just because a stock made you money in the past doesn't mean it owes you more in the future.
Track management, strategy, and capital allocation. A change in leadership or reckless expansion can erode years of compounding in just a few quarters.
The bottom line?
Yes, long-term investing works. But blind holding doesn't. Holding forever only works for businesses that earn the right to be held year after year.
Conclusion: The quiet skill that builds long-term wealth
Selling is rarely as satisfying as buying.
There's no celebration when you book profits. No praise for cutting a loss early. But the truth is that's where the real discipline lies.
Because wealth isn't just built by riding winners. It's built by avoiding traps, exiting when the story changes, and not letting loyalty get in the way of logic.
You don't need to get every stock right. But when you do see the signs, have the courage to exit.
Because in investing, the ability to let go is just as powerful as the ability to hold on.
Note: This article relies on data from the annual report and industry reports. We have used our assumptions for forecasting.
Parth Parikh has over a decade of experience in finance and research and currently heads the growth and content vertical at Finsire. He holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.
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