Knowing When to Sell Your Stock: 9 Rules for Savvy Investors


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4 minutes

Knowing when to sell your stock in a company is a critical decision for investors, and it’s a question that frequently pops up. After all, you wouldn’t want to hold onto your shares for an extended period only to make a colossal mistake at the very last moment. In this article, we’ll explore nine rules that can guide you on when to sell and what they actually mean. Buckle up and let’s dive into them one by one!

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9 Reasons For When To Sell Your Stocks

You should never plan to sell.

Deciding in advance when to sell a particular company isn’t a wise move in any situation. It’s simply too early to predict whether that specific time will be favorable for selling. Who knows how the overall market will look then? Note that this differs from having a plan to supplement your income using your portfolio sometime in the future. In that scenario, you can carefully choose which shares to sell, thus avoiding impulsive decisions.

A position has become too large.

If a particular stock has grown to a substantial percentage of your portfolio, it may be prudent to rebalance and diversify by reducing your position and reallocating gains to other companies. Determining when a position is “too large” is a personal decision that every investor must make.

Make sure to also read our articles “My Balancing Act: When Is My Investment Portfolio Diverse Enough” and “Mastering Investment Portfolio Diversity: An Essential Guide”.

The company doesn’t meet your standards anymore.

If a company fails to meet your standards, whether it’s due to a change in values, business practices, or unethical behavior, it’s time to consider selling. Remember, you want to invest in a company because you genuinely believe in its mission.

The leadership has changed.

A strong leadership team forms the backbone of any successful business, especially during its early growth stages. The last thing you want is a chaotic leadership team that fails to harness the potential of their workforce. If the leadership team undergoes changes, it’s crucial to reevaluate the situation and closely examine the circumstances and the new leadership. Gather information and assess the impact on the company’s future prospects.

The company is ripe for disruption.

Sometimes, an innovative company that once thrived begins to stagnate over time, losing its edge. Perhaps new competitors have emerged and revolutionized the business model, rendering your company obsolete. These material changes can challenge your initial investment thesis and warrant a reevaluation of your position.

You are no longer interested in the company.

While losing interest in a company can be a valid reason to sell, it’s important to exercise caution. This decision should not be based solely on waning enthusiasm, as it may cause you to miss out on potential gains. Ensure that your initial investment thesis remains intact before making a decision.

The company has become too big to succeed.

This situation could mark the beginning of a downward trend. To gauge the company’s trajectory, analyze earnings, income, cash flow, and other metrics, comparing them with those of its competitors. As an investor, you want to witness material and sustainable growth in a business. A stagnant company could signal the start of a decline.

You need the money for other things.

There’s hardly any argument that should prevent you from selling if you genuinely need the money. However, it’s advisable to maintain a certain amount of savings to cover unforeseen expenses. This way, you won’t be compelled to sell your shares during unfavorable market conditions but can choose a more opportune time. Check out our guide “5 Easy Money Moves To Save More” and “10 Money Tips I wish I knew in my 20s“.

You want to make a mistake.

The final rule might sound peculiar, but it holds a deeper meaning. If none of the other reasons to sell apply to you, your inclination to sell may simply be a mistake in the making. We urge you to reevaluate your intention and instincts to understand what truly motivates you to sell.

And there you have it! These are the nine rules we employ to make well-informed and reasonable decisions when it comes to selling shares. By adhering to these guidelines, you can navigate the complex world of stock selling with greater confidence and clarity.

Final Thoughts – When To Sell Your Stocks

The question when to sell your stock is an important one for investors. And it is a personal one too. We generally advocate for holding stocks for the long-term. While there are other strategies available, we think that holding on to your stocks is one that can work out really well for you. That said, there are sometimes reasons as to when to sell your stocks. We don’t ignore that. But a lot of reasons that sound good on paper might not be good ones for you.

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One response to “Knowing When to Sell Your Stock: 9 Rules for Savvy Investors”

  1. […] Since I also invest into my winners, the losers of my portfolio eventually become so small in terms of their percentage. Eventually I do a cleanup by selling some of the long-time losers if my initial investment thesis is broken. Related to that, we have an interesting post about when to sell a stock. […]

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MY INVESTMENT PHILOSOPHY

 #1 Buy and hold Stocks for 5+ years
 #2 Have at least 25 Stocks
 #3 Don't overreact on short-term news
 #4 Reinvest into your winners

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