The Decision to Sell Stock
The timing of your decisions to sell stock is every bit as important as when to buy. One of the main things to keep in mind in stock investing is not to fall in love with a stock as that would make your stock sell decisions much more difficult.
Other than needing the money, there are a number of reasons for coming to a sell decision. The first is the performance and future expectations of the company. Chances are that you bought into the company in the first place because, after examining the fundamentals and its prospects for growth, you saw good value. Perhaps you even enjoyed a nice ride as the stock value appreciated. But changes from the economic climate, to new management, competitive pressures and more may mean that it’s time to part with your stock and find a new investment opportunity that shows greater upside potential.
A decision to sell stock should also be made if you determine that the stock is now over-valued. Using the same logic that led you to invest in the stock when you deemed it to be fairly or under-valued, you can make a stock sell decision when the price of your stock has become higher than its continued growth prospects will support. Monitoring the various value ratios and regularly re-visiting its intrinsic value can help you stay on top of this.
Finally, it might make sense to sell if your needs and risk-tolerance has changed. As you get closer to retirement age it may make sense to re-balance your portfolio around preservation, often triggering a stock sell event.
Sound stock decisions should be made based on your thorough understanding of the company or changes in your investment needs and not on the current stock price. And, before making the decision to sell, you should carefully consider the implications of tax and transaction fees.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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