When to Sell Stocks

A lot of people complain that people will tell you when to BUY stocks, but they never tell you when to SELL those same stocks.

Of course, nobody knows exactly when to sell, but here are a few guidelines that I use:

Something Changed: You will buy a stock for certain reasons. Sometimes, after you buy that stock, something will change from when you bought the stock. Perhaps, the company is doing a lot worse, losing a key director. Maybe one of its competitors made a breakthrough that will yank sales from your company. Government regulations could suddenly interfere with the way your company can do business.

Things change all of the time, and you need to keep yourself from needlessly panicking. On the other hand, there are some changes that are just poisonous, and they will kill you if you let them.

Goal Price Reached: Before you buy a stock, it is wise to determine what could be a good selling price and within a certain time period. For this, I am assuming that you are using some method to value the stock. If nothing about the company changes, except the price, then you should have no real reason to sell your stock until it reaches your price level.

Once you see the price that you envisioned, take time to re-value the stock. If you have good reason to see it go higher, then you probably do not need to sell. However, if the stock reached the price you envisioned, and you think it's mostly reached its potential, it's time to sell it and collect your profits.

Oops! I made a mistake: There are times when you realize--AFTER buying--that you overlooked something critical. Even if you're selling below your buy price, cut your losses. Get out!

We all make mistakes. Just react and learn from them to limit the damages they do to your bottom line. Pride doesn't pay the bills.

Unexpected Quick Rise: Sometimes, the stock price jumps up really high and really quickly. the price might be less than what your target price, but the sudden rise just doesn't make sense. Sniff around the news to see if something changed that was really positive. If not, take a quick profit.

If the stock drops, then repurchase it, possibly buying even more.

If it keeps rising, never to return to the previously low levels, at least you guaranteed yourself a profit.

This is MUCH more easily said (typed?) than done. Ask me how I know this!

Better Deal: This is my FAVORITE time to sell. When I have a really GOOD stock, but I see another stocks that is GREAT, I move my funds--as quickly as possible.

Sometimes, you will not see the benefit of your switch that quickly.

Example: Company A is paying 10%, which is really good. Then you see Company B pays 17%, and they both are similar companies. Where do you think I will have my money?

Don't do this as a game play. I'm only suggesting this if your stock valuation shows that the new place makes better sense. A "gut feeling" is nothing more than greed-based gambling, usually. If the numbers work, though, make that switch. Don't be afraid of changing

Tax Break: This is my LEAST favorite reason to sell a stock.

First, let me explain what I mean by a tax break. If you bought a stock, and the price dropped after you bought it, you would lose money if you sold that stock.

You can write off that amount that you lost against any other profits or money that you earned at work on your taxes.

This is risky business, though. You cannot predict the future, and you cannot buy the stock, again, for 30 days before and for 30 days after buying the stock. You're allowed to buy and sell the stock during this time period, but you cannot receive the tax deduction from your loss during this -30/+30 day period. Check this link for more details: "Selling Losing Securities for a Tax Advantage."

I can only think of one time when I even THINK about selling a stock for tax benefits. If my stock is not moving up or down and seems like it will not move for a while, then I MIGHT--not definitely--sell the stock.

Truth be told, I've never sold a stock for tax benefits, and I'm not sure that I will, either.

There are other methods that people use, most of which are technical investing methods. Most of these tell people when they "should" buy or sell.

These tend to identify one or more of the following:

• whether a stock price has moved too quickly
• whether too many people bought or sold this recently
• whether the price trend is changing
  

No matter what your investing approach, it is always good to know when you will sell. (This is true, no matter what type of investment you have.)

Hopefully, these ideas get you started.

Other people might have other suggestions. I'm entirely open to them.