From MoneyWeek · · 1m 40s
When should you sell a stock?
Knowing when to sell is harder than knowing when to buy. Here's how to do it right.
In brief
Knowing when to sell is harder than knowing when to buy. Here's how to do it right. Sell stocks for specific reasons like profit-taking, loss-limiting, rebalancing, or changing risk tolerance, not to time the market. Originally reported by MoneyWeek.
Time in market beats timing
The best investing strategy is usually to hold tight and let the stock market's natural upward trend work for you over time.
“time in the market is better than timing the market”
Selling is psychologically hard
When prices fall, you resist selling to avoid admitting defeat. When prices rise, you fear missing future gains. Both feelings cloud judgment.
“The position becomes less clear as human psychology kicks in”
Profit-taking with top-slicing
Sell a portion of winners to lock in gains while keeping some skin in the game. If a ten thousand pound investment doubles to twenty thousand, sell half to break even.
“By selling £10,000 worth of shares, the investor would be breaking even”
Watch out for capital gains tax
Profits are only on paper until you sell. If shares are held outside an ISA, selling at a profit triggers capital gains tax liability.
Loss-limiting by cutting losers
Sell underperforming stocks if you've lost faith in the company's prospects. But first check if your original investment thesis still holds.
“running your winners and cutting your losers”
Rebalance your portfolio regularly
Reset your portfolio quarterly or twice yearly. Sell top performers that now make up too large a share of your total holdings.
Adjust for your changing life
Your risk tolerance changes over time. A high-growth stock bought at age 35 might not fit your wealth preservation goals at age 45.
“Are they still intact? Does the holding still fit into your investment objectives?”
No single right answer
There's no definitive rule for when to sell. The right time depends on your personal circumstances, goals, and comfort with your reasoning.
“As long as the investor is comfortable with the rationale, there is no right or wrong time to sell”
Here's the gist
Sell stocks for specific reasons like profit-taking, loss-limiting, rebalancing, or changing risk tolerance, not to time the market.
