How to Know When to Sell Shares
Determining when to sell shares is just as important as determining when to buy shares. Many investors hang on to shares for too long, only to see their investment gains wiped away by swings in the broader stock market. It is not always obvious when you should sell shares. The decision depends upon a number of factors, including how long you have held the shares, how the shares compare to other investments in the market and your current financial needs.
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Instructions
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Use Yahoo! Finance to determine the 50-day moving average of the price of the shares. Type the share's ticker symbol into the appropriate box on the web page, then click the "Key Statistics" link. If the current price is above the 50-day moving average, it suggests that the shares are overvalued relative to historical prices, and it may be a good time to sell. If the opposite is true, the shares are undervalued relative to historical prices, and you should consider holding the shares.
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Check the price of the shares as a multiple of current earnings and compare the multiple to multiples of similar companies. On the "Key Statistics" page, you will see a data table that includes a price to earnings figure. This figure is the price of the shares divided by the company's earnings per share. Click on the "Competitors" link on the right-hand side of the page, and you will be given a list of the company's closest competitors. The list will include data on the competitors, including their current price to earnings multiples. If your shares are trading at a significantly higher price to earnings multiple than the multiples of the competitors, it suggests the shares are overvalued relative to the shares of competitors, and you should consider selling the shares.
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Compute the current dividend yield on the shares by dividing the dividend per share by the current price of the shares. The dividend information can be found on the "Key Statistics" page in Yahoo! Finance. Compare the dividend yield on your shares to the yields on competitors' shares. If the dividend yield on your shares is significantly below the yield on competitors' shares, you would be better off selling your shares and buying the shares of the competitors.
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Compare the current price to earnings multiple of the shares to its historical price to earnings multiples. In Yahoo! Finance, click the "Historical Prices" link on the right side of the page. Select a range of dates (usually at least five years) on the new web page, and click the "Get Prices" button. The resulting page will show you share prices for the past five years as well as price to earnings multiples over the same period. If the current price to earnings multiple is higher than the historical average, you should consider selling the shares.
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Check the analyst opinions on your shares by clicking the "Analyst Opinion" link in Yahoo! Finance. The "Analyst Opinion" page will tell you what professional stock analysts think of the shares. If a majority of the professional analysts have a "Sell" opinion on the shares, you should sell.
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Tips & Warnings
If you have significant gains on the sale of some shares, you may want to sell some shares in which you have a loss in order to offset the taxes you would have to pay on the gains. The Internal Revenue Service allows investors to offset capital gains with capital losses on a dollar-for-dollar basis.
Another factor to consider is how long you have held the shares. If you have held the shares for longer than one year, your gains will be taxed at long-term capital gains rates of 15 to 20 percent. If you have held the shares for less than a year, your gains will be taxed at ordinary income rates, which are generally much higher.
