How to Decide When to Sell Stock
Evaluate a number of factors before you decide it's time to get out of a stock.
- Difficulty:
- Moderately challenging
Instructions
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1
Consider selling if the price has dropped substantially or remained stagnant for several months.
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2
Think about selling if the price has risen to or beyond a target that you established when you bought the stock.
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3
Note whether the company's fundamentals remain strong. You can get the information you need from the Securities and Exchange Commission, which makes corporate filings available for free (see FreeEDGAR.com, under Relates Sites).
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4
Evaluate earnings trends, management changes, revenue growth and other basics to determine whether fundamentals are sound. Even if the stock price is sluggish or, for that matter, has hit new highs, you might want to hang on to the stock if fundamentals remain sound and growth prospects look good.
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5
Visit your public library's business reference section and review reports by Value Line and Standard & Poor's. Do they project no price appreciation for the stock?
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6
Consider changes in the competition. If an effective new player or several hot new players have entered the market, your stock's growth prospects could be in jeopardy.
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7
Think about the company's product line. If the company depends on one product alone and has no plans of broadening its base, perhaps you should think about selling.
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1
Tips & Warnings
Consider the tax consequences of selling stock. If you have taxable capital gains, you might want to take some losses to reduce your taxes.
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Comments
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eschulze
Dec 18, 2008
In other words, don't play the market unless you have plenty of time for research! -
eschulze
Dec 18, 2008
In other words, don't play the market unless you have plenty of time for research!
-
Nov 22, 2005
As I personally practice, and discuss in my blog "Stock Picks Bob's Advice", I believe that setting sale points when making a stock purchase is a good idea. It is important to invest without emotional biases that may interfere with your own rational thinking. As suggested by William O'Neill, in the CANSLIM strategy, it may be helpful to place a limit on how far you will let a stock drop after making a purchase. I place an 8% limit on my stock purchases. In addition, I like to sell my winners slowly, selling 1/4 of my position at a 30% gain, 1/4 again at 60%, 1/4 at 90%, 1/4 at 120%, and then 1/4 positions at 60% intervals. On the downside, if I have sold a stock once at 30% gain level, I will sell at break-even. Otherwise, I let a stock retrace only 50% of the highest sale point. It sounds complicated, but with a good brokerage statement from Fidelity, I find it fairly easy to implement. In any case, setting up your own strategy prior to purchasing a stock is very important if you are going to experience long-term success in investing! Bob
