When to Sell a Stock

Even the most seasoned investor will tell you that knowing when to hold ‘em and when to fold ‘em can be a bit stressful. If the stock seems to be cruising its way into stardom or if it seems to be dragging its feet into the red a little bit further each day, choosing when to bail out can be tricky.

A Little Planning Goes a Long Way

One of the best ways you can stave off this adrenaline rush is to plan the dreams (and the nightmares) you have for your stock as far in advance as possible. This will help you maintain a level of objectivity.

I mean, let’s face it, no matter who you are, you’re going to feel a little pinch when you sell a stock. That’s why it’s best to have a plan way ahead of time.

Maybe your plan is to sell that stock as soon as it drops to only 80% of the gain it’s currently making. Or maybe you’re afraid of a bubble developing, so you could decide on an acceptable percentage above the current gain. Make that your bail out point. If instead a 400% gain sounds like winning lottery to you, as soon as your stock hits that mark, let it go. Drop it and focus on what you gained and not on what else you could have gain.

Take a Lesson From Stock Charts

If you look at a stock chart, the line graph of a stock’s gains and losses, you’ll see that none are without little bits of loss here and there throughout. These dips can be completely natural, but when the loss is getting severe, how do you know when to ditch the stock like a bad boyfriend? Often your initial analysis of the stock's performance and that goal you set will tell you when you've lost too much.

Stuck down river without a paddle? Well if you have not analyzed the stock and set a goal when you purchased the stock, do so now. Look at the stock's past performance. Study the projections. Decide now when a low price is too low.

Don’t Dwell on It

After you sell, you can’t focus on the "what-ifs." Would it have gone just a bit higher? Was it really that low? Couldn’t you have probably just waited it out?

Let it go. Focus on what has been and what is. Don’t focus on the additional money you could have made. Focus instead on the money you did make.

Speak to a Professional

If after all of this you’re still on the fence, consider the tax benefits of selling or staying. That capital loss can be deducted, so if you’re tight on cash, maybe you’d rather have a deduction than a taxable gain.

One of the best things you could possibly do to determine whether or not to sell a stock, though, is to talk to professional investment adviser. More than likely, you’ve been doing a fundamental analysis of the stock, but the adviser may be equipped to do not only a fundamental analysis but also a technical analysis.

Hopefully you have set a goal for your stock from the beginning; a goal that will tell you exactly when to sell. If not, decide a goal now and sell when you reach it. If in doubt, talk to a professional, but remember during the whole process to count your blessings, not your "what-ifs."

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Shaun wrote:

Mon, 06/27/2011 - 13:28 Comment #: 1

Sound advice Jessica, I think my biggest problem is often second guessing myself when it comes to financial matters. Seek good advice and stick to your guns, if you are smart about it the incremental wins will outweigh the wild fluctuations in the end.

Anonymous's picture

Ian Brennan wrote:

Mon, 06/27/2011 - 19:50 Comment #: 2

I applaud your suggestion we should all have a sell strategy (in advance). I might also suggest Gary Kaminsky's book, "Smarter Than The Street". It is one of the few books on investing that talks about micro events (such as management changes), and macro events (such as cultural changes) that should prompt us to revisit the reasons we bought the stock in the first place. After all, I believe capital preservation is huge. Developing the discipline to trade a poor situation for a better one will serve any investor well. As for seeking professional advice, it should be a rare situation where they succeed in convincing us not to sell. Unless they know something specific about the company we don't, waiting for a questionable situation to improve rarely works!

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Weekend Reading: Thank You Edition | Invest It Wisely wrote:

Tue, 06/28/2011 - 03:21 Comment #: 3

[...] When to Sell a Stock (MomVesting) [...]

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Weekend Reading 7/2/2011 — Dividend Monk wrote:

Sat, 07/02/2011 - 17:22 Comment #: 4

[...] When To Sell a Stock Momvesting covers stock selling. [...]

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Weekend Reading 7/2/2011 | Les Dividendes wrote:

Sat, 07/02/2011 - 20:00 Comment #: 5

[...] When To Sell a Stock Momvesting covers stock selling. [...]

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Everything You Need to Know about Stocks | MomVesting wrote:

Thu, 01/19/2012 - 21:48 Comment #: 6

[...] how to tell when to sell a stock? Here are a few things to keep in mind before pulling the [...]

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