How Do You Know When To Sell Your Stock?

Often investors will sell their best stocks and hang on to their losers.  It’s human nature to try to avoid losses and by not selling a poor performing stock you can convince yourself you haven’t really lost anything – and if you hang on, it should bounce back, shouldn’t it?  Some investors will sell if a stock really shoots up so they can take a profit.

So how do you know when to sell stocks, if ever?  Even die-hard buy-and-hold investors should watch for these signs:

Set a Target Price

When you buy a stock, do some research and establish a realistic target for growth.  For example, you could set a target for a 50% increase in price.  When you have reached your target, follow through.

This is especially true with speculative stocks like junior mining companies.  Set a “sell-half” rule – when the stock doubles, sell half of your holdings.

Sell Before You Buy

For every stock you add to your portfolio, sell one you already have.  This discipline forces you to review your holdings objectively and ferret out the losers.  This is an easy method to determine when to sell your stock.

Sell Your Stocks When the Market is Up, Not Down

While this sounds obvious, it’s usually against the pack.  Sell when everyone else is buying.  It sounds easy, but it’s tough to do.  Also, if several brokerages recommend a stock, it’s probably time to unload it.  The price always reflects popularity.

Monitor Even Your High Quality Stocks

Sometimes they can reach an unsustainable price level due to rumors, such as a take-over bid, but it can be anything.  If there is any question of lack of integrity within the company’s management, sell immediately.

If dividends are reduced or even eliminated, it may be the time to sell your stock.  Investigate the reason.

If you stick to stocks with a stable history of dividends and earnings you will become less inclined to sell.  Never sell simply on the basis of an unexpected price drop.  Revisit the reasons you bought the stock and if they are still valid, ride out the downturn.  Be disciplined and don’t get emotional.

The costs of selling – brokerage fees and capital gains tax – often outweigh the benefits, even if you are selling at a profit.

It’s always difficult to know when to sell stocks.  If you didn’t believe in it, you wouldn’t have bought it in the first place.  Analyze your holdings.  Never let sentiment get in the way.  Make a thoughtful, rational decision when to sell your stock.

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  1. Money Beagle on June 28, 2011 at 5:46 am

    When buying a stock, you should also consider the Warren Buffet philosophy. He buys a stock with the mindset that he will never sell it. If it doesn’t pass that sniff test, you have to question why you’re buying it at all. Sage advice!

    • Boomer on June 28, 2011 at 7:06 pm

      @Money Beagle: I love Warren Buffet and take his advice to heart. I don’t believe my high quality dividend stocks are in any danger of collapsing in my lifetime so they are definite keepers.

  2. The Investment Blogger on June 28, 2011 at 7:43 am

    As a value investor, I consider selling when the price reaches its intrinsic value or goes above it and tend to ignore the market overall. But the Buffett/Fisher philosophy has been ingrained in me, so I only buy businesses that I would want to keep & own forever (even if the stock was to go private) and seldom sell. I often only sell pieces of my holdings rather than entire stakes.

    • Boomer on June 28, 2011 at 7:13 pm

      @The Investment Blogger: As I developed my investment philosophy and the types of stocks to own I buy and hold. I don’t intend to sell any of my holdings until it may be necessary in my late retirement.

  3. youngandthrifty on June 28, 2011 at 12:47 pm

    Most of my stocks are dividend stocks and it’s hard to sell them of course, especially when you get them at a good price and they keep doling out dividends. These are great tips, boomer!

    • Boomer on June 28, 2011 at 7:15 pm

      @youngandthifty: I agree. As long as I keep on getting my dividends, especially when they increase regularly, I will hold as long as possible.

  4. Jon -- Free Money Wisdom on June 28, 2011 at 4:18 pm

    These are brilliant tips. It is hard to let them go, but you have to cut ties when you think it will be the most profitable. It is definitely a gamble–but can be worth it if you know what you’re doing!

    • Boomer on June 28, 2011 at 7:17 pm

      @Jon–Free Money Wisdom: When I first started investing and was still feeling my way I bought and sold more regularly especially more speculative stock. Now I stick to my tried and true dividend stock.

  5. My Own Advisor on June 28, 2011 at 6:25 pm

    I’ve made a couple of investing mistakes with stocks, but I haven’t sold one because of lack of target price, overachievement, or lack of dividend growth.

    I believe in the companies I’ve selected and until the business model changes (if ever?) so much that I don’t understand it, I’m going to try and ride these guys for the long-haul.

    For me, dividends are the tell-all. If a company can afford to pay me, hopefully pay me more over time (rising dividends), it’s a keeper in my books.

    Good post.

    • Boomer on June 28, 2011 at 7:21 pm

      @My Own Advisor: I made a few investment mistakes early on, especially if I took advice from others (even brokers)without doing my own research. Luckily I learned from my mistakes and now I’m happy with my portfolio.

      • rogiero peters on September 25, 2012 at 3:16 am

        this may seem dumb , bear with me im new to this. does an individual need to buy my stocks outright for me to get the profits or can any firm. how does it work when i want to dump it.

        • Boomer on September 25, 2012 at 1:40 pm

          @rogiero peters: You sell your stock on the stock exchange that lists it – e.g. TSE, Nasdaq – through a brokerage, either full service with a stock broker, or discount brokerage where you will do the transaction yourself. There will be a fee in either case.

          You need to open an account with a discount brokerage, whereas a full service brokerage will probably do a single transaction without an account.

          P.S. – There are no dumb questions 🙂

  6. Brad Mol on June 29, 2011 at 9:20 am

    Great article Boomer. You’re right about selling when the market is up and buying when it’s down….but emotions get in the way a lot of the time. When you’re feeling really great because markets are rolling is typically when there is the most financial risk (time to sell or trim). When you’re feeling depressed when the markets are down is usually a point of great opportunity (time to buy).

    In Canada we’re also able to use a capital loss on selling a ‘loser’. It can be carried back 3 years to offset previous capital gains, or carried forward indefinitely. This can help alleviate the pain of cutting ties with an investment.

    Tax planning is also a consideration on when to sell. Strategic selling to trigger gains and losses along the way, especially when nearing retirement and having OAS and/or RIF income kick in, can have a meaningful impact on reducing your lifetime tax bill.

  7. Ken Faulkenberry on June 30, 2011 at 11:59 am

    Your advice promotes thought and discipline, both important to successful investment management strategies. Most people put considerable thought and discipline into buying but little into selling. But selling is an important part of the equation. I have written an article titled “Loss Aversion Bias : Selling a Stock at a Loss” which complements your thoughts on avoiding losses.

  8. 101 Centavos on July 2, 2011 at 6:17 am

    I’ve not sold stocks for a while. I’ve loaded my portfolio of stocks up on Google and Yahoo, and occasionally check in to get the latest news. If something drastic happens, I may consider setting a limit sell order. For some mining stocks where I’ve realized a double and sold half (admittedly, not many), my plan is to be like Buffett and let it ride.

  9. Mayme Manikowski on June 17, 2012 at 2:13 pm

    I agree with you, but i don’t understood your summary. Can you expand it, please?

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