Stock Investing: When to Sell Stock

Knowing when to sell is as important as knowing when to buy. Here are some scenarios when you should consider selling your stock.

You made a mistake

Sometimes even experienced investors can be too optimistic when assessing the future earnings, company's strength, and competitors' weaknesses. If the reasons you bought the stock for are no longer valid, sell your stock, cut your losses, take it as a lesson learned and move on.

The fundamentals have deteriorated

After several years of aggressive growth and posting above average profit margin, the company might slow down. New profitable opportunities are less and far in between. New competition is eating into the company's profits. It is time to reassess the future prospects of this company.

The stock price is much higher than its real worth

In the short-term, stock price will fluctuate upwards or downwards for whatever reasons there are. Sometimes the price could go so high above the stock's intrinsic value.

When this happens, investigate the company again, its future earnings and so on to find out if the fundamentals have improved and estimate the value of the stock. If the stock price is very much above your estimate, you'd be foolish not to cash in on this windfall.

Do factor in the capital gains tax when you consider selling.

There is something better you can do with the money

As an investor, you should seek to maximize the returns on your capital. When you have found a profitable stock trading at an attractive price, you may want to consider selling underperforming stock to buy the profitable stock.

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