How to Know When to Sell a Stock: 5 Reasons to Consider Selling

When to Sell a Stock

For many investors, buying and researching what stocks to buy can be interesting. The desire to identify a winning stock pick taps into our human nature. We like to talk about what investments to integrate into our portfolios in the hope of turning a profit. Here are some ideas to keep in mind if you are wondering when to sell a stock for profit.

1. Selling a Stock When You No Longer Believe in the Company

When you bought the stock, you presumably did so because you believed that the company was promising and/or that the price was reasonable. If you start to believe that the underlying fundamentals of the business are in decline, it might be time to sell the stock and reinvest those funds in a company with a better outlook.

2. Selling a Stock Due to Opportunity Cost

This is easier said than done because we are emotionally invested in the stocks that we’ve already purchased. It may be a good idea to try and be as objective as possible during the evaluation and re-evaluation processes.

3. Selling a Stock Because the Valuation Is High

Oftentimes, stocks are looked at in terms of their price-to-earnings ratios. The market price per share is on the top of the equation, and on the bottom of the equation is the earnings per share. This ratio allows investors to make an apples-to-apples comparison of the relative earnings at different companies.

4. Selling a Stock For Personal Reasons

Though not an analytical reason to sell, it is possible that you may need to sell a stock for personal reasons, such as needing the money for living expenses or in the home-buying process.

5. Selling a Stock Because of Taxes

A tax strategy shouldn’t outweigh making decisions based on investment principles. Still, some people may take the rules of taxation into account when making decisions about which stocks to keep and which stocks to sell.

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