How To Know When To Sell A Stock

When should I sell a stock?
What is the right time to sell my stock?
I have a stock with gains but I don’t know whether I should sell to protect my profit.
How do I know when to give up on a stock and sell?

These are all questions every stock investor wrestles with and there is no getting around it. Its usually a hard decision because either way (sell or continue to hold) you can lose.

For instance, if you sell and your stock goes up from the time you sell, you feel bad about selling early and missing out on some gains. On the other hand, if you don’t sell and continue to hold a stock after thinking about selling, it can go down and you lose real dollars. 

So, either way you can potentially feel bad about your decision.

Good Reasons To Sell A Stock

All emotion aside, there are some real valid reasons I use to sell the stocks I own. Please note that every stock buy you make should be made for a reason and with a potential target price in mind. In other words, you should try to stay away from purely buying stocks just because so-and-so analyst or commentator recommended them. Each stock you buy should be carefully thought out and you should have an idea of what you hope will happen. 

Here are the main reasons I might choose to sell any stock I own: 

1) The market goes up, up, up (like right now – 8/21/2014) and I am uncomfortable owning the stock and wish to preserve gains. This is a non stock specific reason and can/could be used to sell any stock at times like these. According to most pundits/experts/analysts, the stock market as a whole is fully valued to over valued at this time. That makes the possibility of a correction likely to come sooner than later. Locking up gains might be a good thing to do, especially if you have a stock that has really run up.

2) The stock I bought goes up faster than I expected and I choose to take gains now and count my blessings. This hardly ever happens but it can in a bull market. If I happen to buy a stock at just the right time and it goes up right away, I might think about pocketing the easy gain and moving on to something else. This usually happens when some unexpected good news comes out and drives the stock price up. One thing I hate is to have a nice quick gain on a stock, get greedy, and then lose it all back!

3) I might decide to sell a stock when the reasons I bought it in the first place are not valid anymore. This happened with my sale of HPQ where I decided that the two reasons I initially bought the stock had fizzled out. When circumstances change with a company or the industry it is in, it might mean that your stock pick is no longer as strong as it was when you bought it and getting out is the best course of action. 

4) If the stock hits my target price, I always at least consider selling. Before I buy a stock, i usually have some sort of a number that I hope the stock gets to. At least a ball park figure. If I am correct and the stock reaches that price, it is time to go back and re-analyze to see if I think it will go higher. Sometimes the good news keeps coming with a stock and there is no need to sell. Other times I might determine that the stock has run up to the point where further upside might be hard to attain and happy with the stock hitting my target, I will sell. 

5) I might sell a stock if it goes down to the point where I don’t want to take any further losses. Buying stocks is an imperfect science and every investor makes some bad choices. Sometimes a stock I buy just goes down and down and looks hopeless to the point where I just have to admit I made a mistake. In a case like that were my loss just keeps getting bigger, I sometimes sell just to get out and end the misery. There is no need to go down which a sinking ship and bailing out can be the right thing to do, especially if it lets me sleep better at night. 

Most investors Buy And Sell Too Often

In today’s Internet trading environment, many stock investors trade too often. You can see this by reading any one of the many online stock message boards where people fret over stocks going up or down by the smallest amounts. it seems like they are always looking for a reason to sell! They treat the stock market as a gambling game and feel they always have to be doing something.

That means they pay too much in commission from the constant buying and selling they do and they haven’t clearly thought out why they bought a stock in the first place. Selling a stock just because it went down a little and you are scared is NOT a reason to sell. If you are afraid to hold on to a stock and truly invest in the company, the stock market may not be for you. 

The most famous and most successful stock investor of all time is Warren Buffet and he holds on to stocks much longer than most. You can read this good article about how long investors have been holding stocks has steadily decreased throughout the years. Today’s investors hold a stock an average of just 6 months where it used to be more than 8 years!

stocks holding period

Frequent selling increases your commission fees as well as increases your taxes as the gains will be taxed at the higher “short term gain” percentage. I strongly recommend buying stocks that you can hold on to for years if at all possible as “buy and hold” still works no matter what you read to the contrary. 

Please remember though, with every stock you buy you should keep track of what is going on with the company to make sure nothing has drastically changed since you bought it. You need to keep abreast of company earnings and other matters that could affect the performance of your stocks. 

How to know when to sell a stock is something you will get a better feel for over time as your experience grows but the reasons I listed above are a good starting point. 

6 Responses to “How To Know When To Sell A Stock”

  1. Glen says:


    I just came across your blog today and I am really impressed with it. I have been an investor for little over 2 years and I have seen some profit. I recently bought Mobileye (MBLY)because I was really excited about their technology but I read today that the stock is over-priced. Do you have any thoughts about this company?

    Thank you

    • Bruce Alan says:

      Looks like a recent IPO that has run up nicely. I don’t know anything about them and cannot advise you but if you are feeling nervous, you could consider selling half or part of your shares to at least lock in a gain that portion. I know you don’t want to leave possible money on the table but if you are content with the gain there is nothing wrong with taking all or part of it.

  2. Paul says:


    you said “pay your marginal tax rate which for many people is a higher percentage than 15%”, I assume this higher for people with higher tax bracket (25%, 28%, 35%) right?.

    How do you keep track of the companies earnings and performance to know when to sell or hold? where are the information source for these?


    • Bruce Alan says:

      Correct on the higher tax brackets.

      Every company reports earnings quarterly and it is during those times when stocks make the biggest moves up and down. This is because investors learn how the last quarter went and they sell if bad earnings are announced and buy if there are good earnings.

      How do I keep track? I read about the earnings from the press releases that show up in the news and in some cases (Apple for example) I actually listen to the earnings call over the Internet.

  3. Paul says:


    You mentioned above that you “increases your taxes as the gains will be taxed at the higher ‘short term gain’ percentage”. Can you give an example of this as compared to selling once a year, for example.

    How do you keep track of the company performance and earnings as you mentioned above?


    • Bruce Alan says:

      The tax rates on capital gains are 15% if you hold a stock for one year or more (long term gain). If you sell before one year (short term gain) you have to pay your marginal tax rate which for many people is a higher percentage than 15%.

Back to Top