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Most of the focus for investors is on buying stocks. It’s the more fun, sexy side of investing.
But knowing when to sell a stock you own is a critical piece of the money making puzzle. Cuz no money ends up in your pockets until you actually sell!
Below we provide some easy to follow info on when to sell the stocks you own. Plus we offer up one piece of advice that can save you a good chunk of cashola and untold heartache.
There are no hard and fast rules on exactly when or why you should sell a stock you own. We bet if you asked 100 investors when to sell a stock… most wouldn’t even know how to answer that question.
And the rest would each have a different answer.
That said, there are some basic, common sense rules you can use to help determine when to sell a stock.
Sometimes the reason to sell is more about your finances than the company you invested in.
If money is tight or an emergency (ie. medical bills, home repairs, job loss, you have to pay back Jabba the Hutt) comes along and you need the cash, then sell. (Just remember if you’re selling the stock for a gain, you’re gonna owe taxes on your profits.)
This advice comes from William O’Neill in his book How To Make Money In Stocks. (One of the classic investing books, by the way.) This rule, according to O’Neill, is iron clad. No matter what, if a stock drops 7% – 8% (at the most!) below what you paid for it, you should sell. This is important cuz it limits your losses on the downside for any stock investment you make.
It also takes emotions out of the decision to sell. And emotions kill your investing returns! The more you can remove them from the equation, the better your long term results will be.
Stocks represent an ownership stake in a real world company. And sometimes, the real world company you own stock in goes into the crapper. Maybe their sales and profits take a big hit. Maybe a competitor comes out with a game changing offer. Maybe it turns out the CEO makes Bernie Madoff look like Robin Hood.
Whatever the case, if the fundamentals of a company you’re invested in takes a turn for the worse, it may be time to sell.
If I wasn’t so lazy, I’d post that meme of the guy holding his girlfriend’s hand walking down the street while checking out the woman who just walked past them.
Anyhoo, sometimes a more enticing option comes along. In love. And in investing.
If you come across something you think is a better investment than your current one(s), then sell and put the money into the (hopefully) more profitable opportunity.
This is assuming you had an investing goal when you bought the stock. It could be it’s time for retirement, to pay for college or to take that dream vacation. Or your goal was to see a 20% return on the stock and it’s up 20%. Whatever your goal is, when you reach it, it’s time to sell.
When it comes to selling stocks, here’s the best advice I can give you…
Have a written set of rules in place for selling and stick to them.
Yes, you can (and probably should) adjust them over time as you learn more about what works best for you. But have a set of written rules, keep them close by, and follow them to a T.