How to know when to buy, hold, or sell ASX shares

You've got to know when to hold 'em, and you've got to know when to fold 'em.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points
  • Buying ASX shares is optimal when quality stocks are undervalued, like Treasury Wine Estates recovering from market worries or Woolworths during price dips, while recognising the long-term value in fairly priced stocks like ResMed and Temple & Webster.
  • Holding shares in strong, consistently growing companies like Pro Medicus and TechnologyOne allows for the benefits of compounding, rewarding investors who remain patient with long-term growth prospects.
  • Selling should be reserved for cases where valuations become unrealistic, such as Commonwealth Bank being overpriced, or when speculative stocks like Brainchip fail to meet expectations.

Buying ASX shares is the easy part. The real challenge comes later: deciding whether to buy more, hold on, or hit the sell button. These choices can make or break your returns over the long run.

Here's a simple framework — with some real ASX examples — to help guide those decisions.

A young man goes over his finances and investment portfolio at home.

Image source: Getty Images

When to buy

One of the best times to buy is when a quality business is temporarily out of favour, trading at a discount to its long-term potential.

Take Treasury Wine Estates Ltd (ASX: TWE). Market worries over global demand have weighed on its share price, but the company still owns premium brands and has been growing its footprint in key markets like China and the U.S.

Similarly, Woolworths Group Ltd (ASX: WOW) shares are down in the dumps right now. It isn't a flashy stock, but it is a defensive giant with steady cash flow and dominant market share in Australian supermarkets.

It is also worth remembering that you don't always need to wait for a bargain.

Buying high-quality ASX shares at fair prices can be just as rewarding if you plan to hold for the long term. ResMed Inc (ASX: RMD), with its global leadership in sleep and respiratory care, and Temple & Webster Group Ltd (ASX: TPW), with its fast-growing online retail platform, are examples of stocks that may not look cheap but have significant growth potential that justifies their valuations.

When to hold

Holding is often underrated, yet it is the stage where compounding works its magic. If the company is still growing strongly and your original thesis is intact, there's no need to sell.

For example, Pro Medicus Ltd (ASX: PME) has been delivering consistent revenue growth through its cutting-edge medical imaging software. With long-term contracts and global demand rising, it is a classic compounding story worth holding.

Another one is TechnologyOne Ltd (ASX: TNE). As one of Australia's most successful software-as-a-service companies, it has built a reputation for sticky customers and recurring revenues. Long-term holders have been rewarded handsomely, and the growth runway remains strong.

When to sell

Selling should be the exception, not the rule — but sometimes it is the smart move.

Consider Commonwealth Bank of Australia (ASX: CBA). It is a high-quality bank, but it is also widely regarded as one of the most expensive bank stocks in the world. If the valuation becomes detached from realistic earnings growth, taking profits might make sense.

On the other end of the spectrum is Brainchip Ltd (ASX: BRN). Despite plenty of hype on social media around its AI technology, the company has almost no sales, faces huge competition, and has been criticised for poor management. When a speculative stock fails to deliver, investors may be better off cutting their losses.

Foolish takeaway

The art of knowing when to buy, hold, or sell comes down to discipline. Look for quality ASX shares at good prices, hold onto long-term compounders, and don't be afraid to walk away from overvalued or speculative names.

By following this framework, you can avoid knee-jerk reactions and let your investments work harder for you over the years.

Motley Fool contributor James Mickleboro has positions in Pro Medicus, ResMed, Technology One, Temple & Webster Group, and Treasury Wine Estates. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended ResMed, Technology One, and Temple & Webster Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Pro Medicus. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool Australia has recommended Pro Medicus, Technology One, Temple & Webster Group, and Treasury Wine Estates. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

Cheerful boyfriend showing mobile phone to girlfriend with a coffee mug in dining room.
How to invest

If I had to build a simple ASX portfolio today, this is what I'd do

A simple ASX portfolio can go a long way over time. Here’s how I’d structure one.

Read more »

A beautiful woman holds up one finger with one hand and has her hand on her waist with the other as she smiles widely as though she is very pleased about something.
How to invest

The Warren Buffett rule I keep coming back to with ASX shares

Instead of chasing cheap shares, this Buffett principle shifts the focus to something far more important.

Read more »

Woman with long hair smiles for the camera.
How to invest

Where I'd invest my first $500 into ASX shares

By focusing on simple, high-quality investments, it’s possible to build a strong foundation for long-term wealth from day one.

Read more »

A mature aged man looks unsure, indicating uncertainty around a share price
How to invest

How to invest in ASX shares when the market feels uncertain

Don't let volatility stop you from investing. Here's how to handle it.

Read more »

Workers planning together in a design team.
How to invest

How to build a $25,000 ASX share portfolio from zero

Time, compounding, capital, and good investments is all you need.

Read more »

A young female investor with brown curly hair and wearing a yellow top and glasses sits at her desk using her calculator to work out how much her ASX dividend shares will pay this year
How to invest

How to start investing in ASX shares with $1,000

The first investment is often the hardest. Here’s how I would approach it with $1,000.

Read more »

A banker uses his hands to protect a pile of coins on his desk, indicating a possible inflation hedge.
How to invest

Stagflation: How to position an ASX stock portfolio

Investing with stagflation might become a necessity on the ASX...

Read more »

A man thinks very carefully about his money and investments.
How to invest

How to build a second income from ASX shares without taking big risks

You don't have to risk it all to build a second income on the share market.

Read more »