Selling Stocks

My great-grandfather once said "You can't lose money by taking a profit".  No one can always expect to sell a stock at its highest point.  Just like you have to learn when and why you should buy a stock, you need to know when and why it is time to sell a stock.  Even the best stocks do not stay that way forever.  Eventually they too will go down, granted if they are an excellent company they may go up again in the future.  This is why you need to keep an eye on your securities and the market.  You do not want to buy or sell every time a stock goes up or down because then the only one who profits are the brokers on commission.  However, you need to realize when it is time to get out.  Sometimes that will mean a smaller profit and sometimes it can mean a loss.  Many investors stay with a stock too long “because I have taken a loss and maybe it will come back”.  The flip side is maybe it won’t, or it may go down further. It is better to take a small loss than a big one.  But by looking out for signs of weaknesses in a stock or the market, hopefully you can avoid being seriously hurt.  Eventually though, you will have to discover your own signs for when it is time to sell. In part it will be due to how much you can afford to lose. Here are just a few things to look for.

Things to Look For:

  • Fundamental Change:  Are the profits and earnings not as high?  Are they still a leader?  Is their balance sheet as strong? (see some of the above items).  Is the company going in the same direction, or is management changing course?
  • Dividend Cuts:  Dividend cuts are generally a sign that a company is in financial difficulty.
  • What are other people saying?  Are the news and analysts reports as favorable or are they getting negative publicity?
  • Slow Growth:  If the stock is not moving, growing slower than it has historically, you might be wise to sell and reinvest in a stronger security.
  • Overvalued Stock:  When stocks soar quickly past their real value, they are often being set up for a fall.  If you have made a profit, cash it in, you can always repurchase the stock.
  • Keep an eye on the industry and its leaders:  If you have purchased one of the top leaders in a growth industry and the other leaders are starting to slow, it might be time to get out before it happens to your company.  The same holds true if the industry is slowing.
Here are two strategies some investors use when it comes to selling shares:
  • Set a target price:  When you purchase a stock, set a target price to sell both on the upside and the downside, either taking a gain, or cutting a loss.
  • Sell in stages:  Some people will sell part, for example 50%, of the shares of a company if it goes up a certain percentage, say 25%.  This way if the stock reaches your sell stage %, you will walk away with some profit.
Furthermore you have to keep an eye on the broader market and look for signs of both a rising market and signs for a market that has peaked and is on the way down.