When to Sell

WHEN TO SELL
It is easy to find suggestions for good buying opportunities. There are many strategies and philosophies available to guide us in the selection of reasonably sound purchases. And buying something new is usually kind of exciting and uplifting. You feel like you’re starting on a bright, new path. But the psychological trauma associated with selling can be gut-wrenching. And just as often as not, we become confused and sell—or even more often don’t sell—for the wrong reasons.

There are really only four reasons or situations that should trigger a sell:

WHEN YOU DECIDE THAT YOU MADE A MISTAKE IN BUYING IT IN THE FIRST PLACE:
This happens. You find yourself wondering what you were thinking, or why did you listen to that person’s advice, etc. Once you know it was a mistake, sell and move on.

WHEN YOUR SECURITY HAS REACHED YOUR PREDETERMINED SELLING PRICE (FOR PROFIT OR LOSS):
In this case you had a sell strategy in place at the time you made the purchase, which is a good idea. A common strategy is to sell if your security loses 20% of its value, but you could use a different percentage as your trigger. Some people actually put in their sell order immediately after making the purchase, using a stop loss price to trigger the sell if the stock goes down to that limit. (Read up on this procedure before you try it.) You could also subscribe to the philosophy of automatically selling any security that has achieved a certain amount of profit. In any case, if you have a strategy in place for selling, you should be consistent with it.

Do not be deterred from selling because you are hoping the price will recover to at least your purchase price. This is probably the most common error: holding onto a loser with the hopes of achieving 0% return on your investment. When it’s obvious the stock is “dead money,” go ahead and sell so that you can put that money to work profitably.

WHEN YOUR OPINION ON THE OUTLOOK FOR THE SECURITY, THE MARKET, OR THE ECONOMY HAS CHANGED:
Hopefully you make investments based on sound reasoning. But things can change. If fundamentals change at a company you own, or an industry sector goes out of favor, selling that company or companies in that sector could benefit your portfolio. Of course, this can be a very hard call. You have to decide if this change is temporary and fixable, or is it a harbinger of worse things to come. Do not put off assessing the situation.

WHEN YOU NEED THE MONEY FOR SOMETHING ELSE:
This reason is the easiest to identify. If you need to take money out of your investment portfolio, sell the weakest of your holdings: the stock(s) with deteriorating fundamentals, not your winners. When you find another investment that meets your criteria as a good investment, and it is a good time to buy this new investment, but you don’t have the buying power, sell your weakest holding(s) to raise enough money to buy that something better.