“You gotta know when to hold’em and know when to fold’ em!”
Selling a stock is one of the most difficult decision an investor faces, while purchasing it is sometimes much easier!
Like most investment decisions, selling is part science, part art. Unfortunately, for many investors, however, it amounts to sheer panic. They sell when their stock goes down. They sell when the entire market goes down.
In short, they sell for emotional reasons!
Most investors are motivated by things such as fear of loss and fear of regret rather than by rational decisions designed to grow their money.
These emotional, and irrational, decisions are just what successful investors must avoid.
Besides, if you don’t buy a stock prior to a major climb in prices, all you’ve lost is a hypothetical opportunity to make a good profit.
But if you hold a stock and make the wrong decision concerning when to sell, you can lose a substantial amount of your profits and sometimes even a part of your capital.
Think about selling before you buy.
Before you buy a stock, you should consider both your motive and your time frame. Monitor your investment and make your decision to sell based on your original goal.
If you reach your goal before your time frame, you can sell and feel good knowing you achieved your objective.
But if your time schedule pass and you’re not even close to your goal, you may have to consider selling or readjust your schedule.
Figure out how much you can afford to lose.
Sometimes, the value of many stocks may go immediately down. Some will recover and go up, but others will not.
To avoid the second situation, you should determine well ahead of time how far you’re willing to go before you’re ready to sell and get out!
Depending on your personal situation, you may be able to absorb a certain percentage of loss, but the main thing is to establish a “stop loss” point for yourself and then stick to it.
Measure the performance of your stock against other similar ones.
Even if your stock’s performance is not living up to your expectations, don’t abandon your plans without first surveying the overall climate.
If you can find a better return somewhere else, perhaps you should seek that alternative. But if all similar investments are performing at about the same level, maybe you should hold on.
Don’t be greedy!
When the value of a stock is going up, well beyond your initial goal, it’s sometimes hard to sell it. Remember that selling too early is still preferable to selling too late.
If you insist on keeping it, limit yourself on how far down you will let it drop before you sell.
Strictly speaking, when you sell part or all of your stock holdings, you can’t always possibly be 100% right!
If the stock continues to rise, you’ve sold too soon. If it falls, you should have sold the entire position. But partial sales do make sense within the context of an entire portfolio.
If a stock has done extremely well, so that it seems very expensive compared to the overall market, and yet there seems to be nothing troubling about the fundamentals of the company, it might be time to peel off a few shares to rebalance your portfolio.
It’s the core strategy that’s important, not your ability to time one stock or another.
Selling really means that you have found an alternative investment whose odds you like better than those of the one you’re already in.
And the more alternatives you’re researching and getting excited about, the less likely you are to feel ambivalent about a particular sale.
You don’t owe your current holdings any more consideration than you do to any potential future holdings!
After all …
New stocks are only a phone call away!