Home
>
Stocks & Mutual Fund
>
Stock Market Investing: Knowing When (and when not) to Sell

Stock Market Investing: Knowing When (and when not) to Sell

One of the greatest challenges of investing in stocks is developing a "sell discipline". Some of the most adept investors struggle with the decision of when to sell.

First, recognize that there are no absolute formulas to tell us to sell at precisely the right time. Instead, we'll need to consider a bundle of factors such as the investment's characteristics, the broad economy, and your own needs, with an eye to market trends. The answer will come from some combination of these hard-to-quantify characteristics.

If you'll need cash soon, for whatever reason, you should be more ready to sell, especially if a stock becomes less of a sure thing. Similarly, if the economy is weak, we might be more motivated to take profits (or even losses) in stocks which are sensitive to economic swings, while a strong economy might allow us to hold tight.

Most important, however, is the intrinsic value of the stock itself. A simple rule plays out here: buy when a stock is under-valued (when the stock sells for less than its intrinsic value), and sell when it is over-valued (priced above intrinsic value). The trick is measuring intrinsic value, which can be done many different ways. We'll talk about measuring intrinsic value more at another time, but regardless of how we measure it, we had to have an idea of what the company was actually worth when we bought it. So, if we reach that target, we can start thinking about taking profits. It isn't always necessary to sell out immediately, though. For a pure value stock, we should sell somewhere in that range, but if the company is expected to grow, we can wait longer and take advantage of that growth. Perhaps, as a rule of thumb, wait until the stock reaches a price double what we think it's worth. Of course, this is a personal decision, too, and depends on how patient you are, and how much you have invested. At this point, the "easy money" has already been made.

Market Trends. It is our firm position that market trends alone should never lead to buying or selling a stock. However, if we've already decided to sell, trend indicators, used carefully, can enhance profits. For example, if a stock is in a solid uptrend that shows no signs of slowing, it may be profitable to wait for the stock to approach a short-term top before selling. Beware that you don't hold too long. Better to sell early than late. Eventually the market will catch on to reality, so if your evaluation of the stock is right, the risk of holding on too long can be far greater than the small benefit from holding out for that extra dollar.

A few other errors to avoid:

Don't avoid selling because you're emotionally attached to a stock. Circumstances change over time. There's no reason to beat yourself up over it. Just dump the loser and move on.

Don't sell when panicked. Panic is an emotional response, and usually wells up when things aren't going your way but you can't tell why. Know why you want to act. Until you can make a judgment about why to sell, it's probably best to hold on and wait out the fear.

Don't sell when worried. In many ways, worry is similar to panic, if a bit milder. It is still an emotion, and one that should be controlled. Stocks are often said to "climb a wall of worry", which means that they will ease upward through difficult times. When news is worrisome, but not devastating, the only remaining catalysts are good things, as all the bad news has probably already been factored in by selling among the worrywarts.

Don't sell when bored. Just because a stock isn't moving doesn't mean it was a bad selection. It may just indicate that you're smarter (and therefore earlier) than the market hordes. If you're still convinced it was a good choice, hold firm and wait for everyone to catch on to your wisdom. Especially with value stocks, it can often take a year or longer before the mainstream recognizes a good stock, and that's when the price will start moving. Patience is a virtue.

In the end, every selling decision is a personal one, and must balance out all the factors we've mentioned. The most important rule, of course, is to sell when it benefits YOU.

To send comments or to learn more about Scott Pearson's Investment Management Services, visit http://www.valueview.net

Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As editor and publisher of Investor's Value View, a national investment newsletter, he provides general money tips and investment advice to readers, and demonstrates a special knack for locating the up-and-coming stocks in the burgeoning high-tech industries. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide variety of clients.

Wood Dale Chicago prom limo .. Lockport Chicago limo O’Hare

In The News:

Fueled by artificial intelligence, CyberDog the robotic dog is designed specifically locate fire ant nests, which are endangering ecosystems.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents

Internet browsers are useful, but they can be dangerous. Clicking on malicious links can direct you to dangerous websites that steal information or infect your device.

Apple's latest iOS update introduces advanced artificial intelligence capabilities, which may be capturing and analyzing sensitive information.

Breach site confirmed 56,904,909 Hot Topic users' data leaked online. Tech expert Kurt “CyberGuy" Knutsson says the company's silence makes matters even worse.

Tech expert Kurt “CyberGuy" Knutsson discusses how an innovative Easy-Way kit turns standard strollers electric, simplifying navigation for parents.

Tech expert Kurt “CyberGuy" Knutsson talks about T-Mobile being hacked in broad cyberattack on global phone and internet companies.

Tech expert Kurt “CyberGuy" Knutsson shows you how to add, customize and manage widgets for quick access to apps and info from your iPhone home screen.

Wrong Google searches can not only compromise your device and personal data. They can also bring law enforcement to your doorstep. Hackers are targeting Google searches.

China's Shanghai Kepler Robotics has developed a new humanoid robot that can carry up to 35 pounds per hand for commercial applications across various industries

Checking your hearing has gotten easier with the new hearing test feature in AirPods Pro 2. You can take reliable hearing tests using your iPhone or iPad.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Kurt "CyberGuy" Knutsson explains how a VPN — virtual private network — works and how running it can slow down the operation of your device.

The WalkON Suit F1, an exoskeleton developed to help people with disabilities, can actually walk over to a person in a wheelchair, solving a major problem.

ClickFix, a new scam targeting computer users, is on the rise in the U.S. The scam prompts its targets to click on a link to fix a problem.

Skydweller is the world's largest unmanned solar-powered aircraft that can stay airborne for weeks, and even months, without refueling.

The U.S. government said it is investigating after People's Republic of China hackers targeted commercial telecommunications service providers in the U.S.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Scammers are using increasingly sophisticated ways to lure unsuspecting victims, and some are impersonating an email help desk or support team.

You can unsend or edit your iMessages with the latest iOS updates. Kurt the CyberGuy explains how you can save yourself some potential embarrassment.

Kurt “CyberGuy" Knutsson says there’s been a rise in cybercriminal services using hacked police and government emails to send subpoenas and data requests to U.S. companies.

Kurt “CyberGuy" Knutsson discusses how Axiom Space and luxury designer Prada are collaborating on NASA's Artemis III spacesuit design.

Voice assistants may cause confusion across devices. Tech expert Kurt “CyberGuy" Knutsson offers some solutions to fix it.

Shameless scammers trick veterans into giving personal info or cash. Tech expert Kurt “CyberGuy" Knutsson explores five common scams.

Stock Market Investing: Knowing When (and when not) to Sell

Stocks & Mutual Fund