When to SELL a stock?

[cletus]

This is a question that's been lurking in the back of my mind ever since I started learning about the stock market. I've read lots of stuff about how to pick stocks and when to buy but I don't see much about coming up with a exit plan. I'll sum up the three major ideas I've seen so far but feel free to add your own. I can go into more detail for each one if anyone is interested. As you can see they are almost complete opposites of each other.

1. Find a good company and never sell (call it the Warren Buffet way).
2. Sell when the stock is overvalued vs the fundamentals.
3. Don't try to sell at the top. Sell after a reaction if there is no rally.

On the one hand, you can sell to early and lose out on any subsequent gains. With the amount of volatility in the current market this could be a big missed opportunity. On the other hand, you could wait to long to sell and end up not making any money at all. I think this would piss me off even more then selling right before a stock skyrockets.

I'm going to give a example here and also one of the reasons I'm making this thread. I bought a few hundred shares of Suntrust Bank back when they were about $34. Right now the stock is at $43 and I'm getting a little nervous. I am bullish short term but bearish long term on all financial companies. I'm trying to decide what to do but I can't seem to make a decision. I guess I would just like to get some ideas on how other people decide when to sell. For now I've put in a stop loss order to ease my mind a little.

 

[Magehart]

Sell it only if it's up. If it's up and you want out then get out. Profit is profit no matter how you slice it. You can ALWAYS make more in stocks it's just a matter if you want to risk losing it to get there.

Pull out and swap to mutual funds if you want a safer bet.

(on a side note how long have you had the $ in that stock? If it's under a year and you pull out you're well ahead of the game).


*disclaimer*
expert at nothing but opinions about everything

 

[Ender]

Mutual funds are the smartest choice for most consumer, especially for those who don't want to babysit their investments their entire life. Vanguard offers some of the best index funds out there, with low fees but high buy-ins.

But, if your heart is set on keeping individual stocks, then the wise investor will do this: sell when the stock is getting high. You may be inclined to keep it and hope that it keeps growing, but after a stock has inflated a good bit, it's inevitable that it will come back down, and then you'll have lost your earnings. You must operate counter-intuitively, selling when you feel like you should stay, and buying when things have bottomed out.

 

[lordwow]

sell it only when it's up is an interesting theory, but sometimes you have to know when to cut and run.

 

[dopa345]

I keep it simple. Based on how I value a stock, is it overpriced or underpriced? If it's overpriced, regardless whether I'm up or down on it, I'll sell it. If I think the stock price is undervalued, I'll hang on to it and average it down if I'm confident of my assessment. Generally with stocks with solid track records for dividend payments, I am more tolerant with volatility in the stock price. If you try to time the market, you'll go crazy and will make out worse in the long run compared to having a clear objective assessment of your stocks and basing your decisions accordingly.

 

[BillyBob29]

I have clear profit/loss targets for every position I enter. If the loss target is hit, I dump the position and look for the next trade. If the profit target is hit I will re-evaluate the position based on its technical merits, is it overbought, is it near resistance, is volume drying up etc, as well as the overall market trend. Depending on what I see I will either just dump the position and take my gains or adjust my stop and let it keep running. However, I trade on technicals so I sell when I see clear signs of a reversal, simple as that.

If you are worried about missing more upside, put a trailing stop on the position and let the market force you out. If the stock continues to move up, your trailing stop will move up with it, if the stock reverses you will get stopped out and the majority of your profits will be protected.