Investing is a business you need to understand – as an investor, but also as a business owner. Suppose you have shares. When do you sell it? Should you sell them at all? As a business owner, you need to understand the influence shareholders can have.

And: what role do shares play in a exit strategy

what are stock infographic

What are shares?

Let's start at the beginning. When you buy stock, you basically own a part of a company. When the company is doing well, you often receive a dividend.

As a shareholder you often also get voting rights – unless the company has a trust office foundation has founded. Then you only have the right to profit and no right to vote.  

Why buy and sell stocks?

There are multiple reasons to buy and sell stocks, but most retail investors invest in stocks to grow their wealth. In other words, the aim of investing in shares is to achieve a certain return. 

When should you sell shares? 

Don't sell your shares too early. The advice of investment king Warren Buffett is therefore to keep your shares 'forever'. Of course that doesn't always work, but at least you shouldn't sell them too early. 

The best tip is not to act on your emotion. Fear, in particular, is a bad counselor in the world of stocks. You have to look at the long term, not the short term.

Is a stock rising or falling? Fine. But the price of a stock is not a direct reason to sell. If you hold onto the stock, the price might be ten times higher next year. Often the right time to sell is further in the future than you think.

Shares in your company

Stocks also come into play when you own a company. When you sell shares of your company, you are dealing with shareholders. In principle, they have the right to profit and to vote. A business takeover often takes place through the sale of shares. 

Does one party buy the majority of the shares? Then this party is the owner. Usually an acquisition is approved in this way by the Board of Directors.

Then we speak of a friendly takeover. A party can also buy the majority of the shares without management approval. That's a hostile takeover. 

Equities and exit strategy 

Selling shares can be part of a good exit strategy. You then have to find a reliable buyer for more than 50% of your shares. This can be an internal party or an external party. 

As an example, we mention two ways to sell your business: the Management Buy-In (MBI) and the Management Buy Out (MBO). In an MBI, an external manager buys the company. In the case of an MBO, (a member of) the incumbent management takes over the company. An MBO and an MBI both go through the sale of shares.