Here’s How to Know When to Sell Your Stock
There are good and bad reasons to sell stocks – do you know the difference?
- It’s generally a bad idea to sell stocks just because the price has gone up or down.
- However, there are some good reasons to sell stocks, and most fall into five categories.
- By making sure you’re only selling for the right reasons, you can avoid some costly investing mistakes.
The stock market has been very turbulent lately, and many investors may be tempted to sell their stocks and remain on the sidelines. And that’s especially true when your stocks are down — after all, losing money can be scary and cutting your losses can seem like a good idea, especially when many experts are calling for a recession.
However, it’s generally not a wise idea to sell a stock Only because the price has gone down. In this article we will discuss some good reasons to sell stocks and also when not to do so.
Good reasons to sell
Every situation is different. But for the most part, the good reasons for selling stocks fall into one of these categories:
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- Your reasons for buying are eliminated — For example, if the company you have invested in starts losing market share to its competitors, this can be a good reason to exit.
- You need the money – I generally suggest that the money you might need in the next couple of years shouldn’t be in the stock market, but if you do need the money it can certainly be a valid reason to sell. For example, if you have to pay your child’s college tuition this fall, it might be a smart move to sell some stocks and put the money in a savings account or CD until you need it.
- You have to rebalance — It’s generally a good idea to maintain an asset allocation that matches your risk tolerance and avoid putting too much money into a single stock. So rebalancing your portfolio can be a smart reason to sell some stocks.
- Your stock is acquired — If the company you are investing in agrees to be taken over by another company, this can be a good reason to sell and move on.
- You find better opportunities — If you find an incredible buying opportunity in a company you have your eye on, it can be a good reason to sell some shares to free up cash in your brokerage account.
Bad reasons to sell
I alluded to this in the introduction, but it’s generally a bad idea to sell a stock just because it’s up or down. If you’re a long-term investor, you own stocks because you think they’ll do well over the next five, 10, or 20 years — not to cash out when they start doing well.
I’ve debated this many times, but this is a lesson I learned the hard way. I bought Tesla shares shortly after the IPO and decided when to sell engine trend named the Model S Car of the Year in 2013, and inventory nearly tripled. But the company did everything I hoped it would and other than the price there was no real reason for the sale. If I had persevered I would have ended up with a six figure win.
On the other hand, it’s also a bad decision to sell just because a stock has fallen. It’s common knowledge that the goal of investing is to buy low and sell high, but getting rid of a stock “before it gets any worse” is quite literally the opposite. Now, it can be a good idea to sell when a stock’s price has fallen And Something has changed in your investment thesis. But the price alone is a poor selling point.
Sell for the right reasons
Even the most notorious long-term buy-and-hold investors like Warren Buffett sell stocks regularly and for a variety of reasons — but they don’t Only because of price. There are certainly some good reasons to sell stocks, so check the list in this article beforehand to make sure you’re not selling for the wrong reasons.
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