When to sell your stocks
In my last column of September, I told you that I wasn’t sure when to sell one of my options contracts.
My profits were pumping, and for about a week the thrill of success was offset every second by the agony of indecision.
Any day, a sudden shift in the stock market could drain my gains. As exciting as each uptick can be, it carries an equal and opposite emotional response based solely on the possibility that a stock could spiral.
I published that column on a Monday. The next day, I found clarity.
It came from a trusted source.
At the end of “Trappin’ Tuesday’s” two weeks ago, a caller asked Wallstreet Trapper the exact question to which I needed an answer.
“Once my play hits 100%, do I go ahead and take profit and reinvest it?” the caller asked. “Or do I ride it out for a little bit as it gets closer to the expiration date? Take my profit then and then reinvest?”
Per usual, Trap’s advice was exquisite.
“If you’ve got one (contract), man, don’t be greedy,” Trap said. “If you got one, you got 100%, man, that’s what you came here for. They gave you what you came for. You flipped your money.”
Because I trust Trap’s teachings, I knew immediately what I had to do. And that led to a different range of emotions, which I’ll unpack in Thursday’s column.
The caller’s question, as well as Trap’s answer, also inspired this column. They made me realize I’ve yet to touch on this topic.
I’ve presented guides on when to buy stocks and how to buy stocks. But I haven’t written about when to sell your stocks.
I’m a believer in the buy-and-hold strategy. So my recommendation is to hang on to quality individual companies, as well as mutual and index funds, for the long haul.
But there comes a time when it’s wise to sell. Here are five good reasons.
Sell high. Don’t forget that what comes after “buy low” is “sell high.” The whole point of this investing game is to collect a profit. We can’t do that if we never sell. But stick with another sage piece of advice from Trap here: “sell the eggs, never the goose.”
Sell a loser. There are several reasons a stock might not go in your favor. It could have been a mistake investing into it to begin with. The company, industry or sector might be in a rough stretch. Or the macro economic environment could have turned for the worse. I still haven’t grown comfortable selling my losers. But then again, I haven’t had many and none for significant sums. Getting off losers, however, can bring both psychological and tax relief.
Sell if a story changes. Your investment thesis can change, or a company can move in an unfavorable change of direction. I shared with you in September that I went on a selling spree in August. One of the companies I sold was Vornado Realty Trust, in part because it reduced its dividend payout to once per year — rarely a good sign for a company’s financial health.
Sell for a life event. Life throws circumstances at you where you just need a little cash. I’ve been there too many times with car repairs. A new vehicle or home, a wedding or vacation, college tuition or covering debt might be reasons you wish to sell your stocks. Be smart about it and save the decision for big events and emergencies if you can. If there’s an alternative, seek it. I don’t recommend interrupting the compound effect.
Sell for a better investment. Whether you’re up or down, selling out of a position is never a bad idea if you’ve got a better place to park your money. It’s impossible to regret pulling funds from one stock if the stock you transition to is a more efficient investment that grows your money faster.
Disclaimer: The information contained on Money Talks is not intended as, and should not be understood or construed as, financial advice. I am not an attorney, accountant or financial advisor. These are my personal experiences, and neither this website, newsletter nor podcast is a substitute for advice from a qualified professional.