I know many investors would like to know when they should sell their stock. Today I will explain my thought process of selling a stock and what to look for when making that important decision of taking a profit.
I cringe when I hear someone talk about how much money they are up in an individual stock and 6 months later they end up selling for a loss. This is a very common occurrence when investing in the stock market. I know! I’ve been there. When I first started investing I was terrible. I lost money because I didn’t have a clue on when to sell my stock. You must have patience when investing and be able to keep your composure when times get tough. Selling stock is a very crucial component to growing your portfolio, but selling at the wrong moment could cost you dearly!
Here is a brief list of what goes through my mind when I want to sell some stock
1. Your stock has more than doubled. As Jim Cramer would say. “Sell your initial investment and let the rest run.” You’re playing with the houses money! Hey I learned from the best (Thanks Jim) If you haven’t sold a single share when you have a gain of a 100% or more you’re being plain greedy! I promise that what goes up must come down! So please sell some stock.
2. Sell a percentage of your holdings if a stock runs up to far too fast. Many stocks run up from the trough (bottom) to peak (top) over a period of weeks in excess of 20%. I don’t know what it is about 20%, but I have seen a stock go on a great run and then suddenly run out of steam at the 20% mark. (Key moves 10%, 15%, and 20%.) I guess fund managers use round numbers. I always take some stock off the table at 20%. I never sell all my stock at once, but it’s imperative to lock in a profit after a 20% run.
3. Continuing on with the 20% move, I would like to add that I pay close attention to a stocks chart on this one. I don’t care what price I paid for the stock I will sell a portion of my holdings after a big run. I wait for the stock to pull back and then I enter back into the stock at a lower price. Buying and selling keeps me on my toes and forces me to pay attention to my stock like a shark.
4. Always sell into strength. It feels so good to sell when a stock is up. Don’t try to time the top of a move. By the time you try to figure that out the stock will be down a couple bucks ($$$). You’re trying to make money here! Stay focused on the task at hand. Sell when others are buying and buy when others are scared! This is how you make money. If everyone knows about the stock and its being hyped on the TV and Internet, I hate to burst your bubble, but the big money has already been made! Move on and find a better money making opportunity.
5. Always sell if the reason you invested in the stock changes for the worse. Business changes rapidly and when the outlook changes for a company in a negative fashion, run for cover! Shoot first and ask questions later. Sell immediately and sit on the sidelines to process the new information. You do not want to be caught in an out of favor stock. It will sink like a rock!
6. Sell when your portfolio value becomes over weighted in one stock. You don’t want to have too much money in one individual stock. It’s okay to have a couple of front runners, but keep it within reason. Example: if a single stock consists of more than 50% of your portfolio a change must be made.
7. If a better opportunity presents itself, feel free to sell a stock to put yourself in position to make a profit. It’s called opportunity cost! You have to take full advantage of any opportunity that leads to an increased chance to make money off your investments. I’ve done this many times. I would sell an under performing stock and reinvest the money in a higher quality company. This really does work! Don’t be the person to wait for your stock to break even and then sell. It won’t happen! Cut your losses and move on.
Obviously, much more information runs through my head, but this list will get you started in successfully making money in stocks! I buy stocks when they are cheap and I keep tabs on them as they progress and appreciate in price. The thing is people are less willing to buy stocks when they are perceived as to high (Expensive) It’s the same concept as shopping for a car. Everyone wants a deal! I may want to buy a new BMW for $40,000, but that’s a little steep! If I talked the car salesman down to $35,000 I would be getting a deal. I would be more willing to buy the car at $35,000 because it’s a bargain and not $40,000 or the fair value of the car. You can compare stocks to buying clothes, appliances, electronics, services, and groceries. You will pay up for a bargain! At least I would. Always look for value when investing. It all comes down to the future of a company. Value is where the money is made!
Sell a little in WFT and CAT. I’m going strictly off the charts on my recommendations. WFT and CAT are in overbought territory. Apple (AAPL) has been quiet for awhile. I like the chart on this one. It’s spooling up like a turbo!
Have a great night!
Clay-
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