Time To Ring The Register: When To Sell A Stock

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Owning a winning stock that’s worth more than when you originally purchased it is a great feeling. As long as it keeps going up, you’ll want to hold on for the ride. But knowing the right time to sell a stock is arguably more valuable than knowing when to buy one.

It might seem counter-intuitive to sell a winner, but there’s one key point you need to keep in mind: until you actually sell a stock and pocket those profits, you haven’t actually made any gains. On paper it may look like you’re successful, but don’t let that distract you from the fact that those gains aren’t real. If you sell a stock at a profit and it keeps rising, you still made a profit. But if you hold a stock too long, it can decline in value faster than you think erasing those gains in the blink of an eye.

There’s an oft-repeated phrase in Wall Street circles, “bulls make money, bears make money and pigs get slaughtered. Experienced investors know how to buy a stock before it becomes too expensive – smart investors know how to sell a stock before it falls.

Signs it’s time to make an exit on a stock you own

One of the first things you’ll want to do when buying a stock is to have an exit strategy already mapped out. Know beforehand what price you expect it to hit and when you think the stock will have made its possible gains. Once the stock hits that price, you’ll know that it’s time to go ahead, take your profits and move on.

Of course there are times when a stock’s outlook changes by the time it hits the price target you placed on it. Sometimes the stock is still undervalued with room to run. In those cases there’s nothing wrong with placing a new price target on the stock and continuing to hold it. But usually as a stock appreciates in value it becomes more expensive to own.

Once a stock approaches parity and there’s no hidden value left in it, the stock may simply stagnate. It won’t go up, but it doesn’t retreat either. There’s an opportunity cost to holding on to it. In these cases selling the stock in favor of something that’s currently growing is the best course of action.

Paying attention to your investments is important. Sometimes a company announcement of surprise economic data can change your original plan with a stock making it more or less valuable than you thought. The market is a living breathing organism that’s constantly in motion so staying on top of the latest developments will help you spot potential pitfalls before they become serious problems.

Final considerations

Remember that you can’t lose money by selling a stock at a profit no matter what it does afterward. Don’t be afraid to sell a winner and move on to another undervalued opportunity or you could end up costing yourself higher returns in the long run. Greed is the biggest killer of value in most investor portfolios – take the win when it’s there, don’t second guess your decisions and you’ll be well on your way to becoming a successful long term investor.