Shekar · a moment, addressed

My stock is up 40%. Should I sell?

A rising price is not a reason. Here is the question that actually matters.

Section 0 · Real moments4 min readFirst-time investorPublished
An editorial illustration of a young Indian woman caring for a healthy, young mango tree bearing its first few fruits in a sunlit courtyard.
Would you cut down a young mango tree just as it starts to bear fruit?

Selling a stock just because the price went up is often like cutting down a healthy tree for quick firewood. Let's look at a better way.

Riya bought a mid-cap pharma stock fourteen months ago after reading the annual report. Yesterday her portfolio turned deep green. Her colleague said sell it, take the money. She stared at the screen. The business had not changed — but the number had. She did not know what to do.

Colleague
It's up 40%! Sell now and lock in the profit before it drops!

A gain tells you what the price did. It tells you nothing about what the business did. The price can climb while the company weakens — or stay flat while the company strengthens.

When you bought, you had a thesis. Maybe the company had a strong moat, manageable debt, and room to grow. The only question worth asking now is: has that thesis broken?

Check for real changes. A serious new competitor. A management misstep. Debt climbing toward danger. If none of those have happened, your thesis is intact.

Then ask the second question: is the stock priced for a perfect future? No room for error, every assumption must go right? Compare the price to your own estimate of intrinsic value. If the price is still inside that estimate, you have no reason to leave.

Analogy

Your neighbour has changed his mood

Think of Mr. Market — a mood-swinging neighbour who knocks on your door every morning with a different offer for your share of a business you both own. Yesterday he was gloomy and offered a low price. Today he is euphoric and offering a high one. His excitement does not make the business worth more. It produces the same cash. Serves the same customers. His good mood is useful information — but only if the business itself has given you a reason to step away.

Enter your own estimate of the stock's intrinsic value and today's market price. The widget shows instantly whether you are inside your margin of safety, at fair value, or paying for a perfect future.

Is your stock still inside its margin of safety?

Price as a multiple of your IV0x
Today's Price₹1,200
Your IV Estimate₹1,500

The stock trades at 0.8x of the IV you entered. Your IV of ₹1,500 is your best estimate of what this business is worth — not what the market is paying today. Below 1×, a margin of safety still exists; a 40% gain simply means the market is catching up to the value, not racing past it. Above 1×, you are paying a premium. That is not automatically a reason to sell — but it means your investment case must hold with no room for error.

Why this matters

Every sale carries two costs most investors forget. The tax: 20% if you have held under a year, 12.5% on gains above ₹1.25 lakh if you have held longer. And the compounding cost: you step off the curve and must find an equally good business to start over. Before you sell, ask one honest question. Would I buy this business at today's price? If the answer is yes, you already own the answer.

SHORT-TERM TAX
20%
On gains if sold under 1 year

Where people go wrong

  1. Selling because the price has already risenPast price is not a thesis. The only question is whether the future earning power of the business has changed — not what the chart did last week.
  2. Selling at exactly twelve months for the LTCG rateTax timing is a footnote, not a strategy. Exiting a compounding business one day early to save a few percent in tax is a small win against a large long-term cost.
  3. Selling without knowing where the money goes nextCash earns nothing. Before you sell, name the clearly better opportunity. If you cannot, you may be selling for comfort rather than logic.
  4. Treating unrealised gains as house moneyYour gain is real money. Apply the same vigilance you used when you bought. Relaxed attention at the top of a good run is exactly when mistakes happen.
If you only remember three things

  1. A rising price is not a sell signal. Ask whether the business has changed — not the chart.

  2. Tax is a real exit cost. STCG takes 20%; LTCG takes 12.5% on gains above ₹1.25 lakh.

  3. The honest test: 'Would I buy this business at today's price?' If yes, you have your answer.

We are wired to sell winners for the relief of a confirmed gain and hold losers waiting for recovery. That is the precise opposite of what compounding rewards.
Shekar

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