Reasons for Selling a Stock

It can be difficult to know when to sell a stock. Many investors do not like to sell a stock because they view that as admitting they made a mistake when they bought the stock. There are several reasons for selling a stock. I sold my position in several different stocks this year and I will share my reasons for doing so.

One reason to sell a stock is because the reason you bought the stock has changed. I bought a couple of stocks last year based on the fact that I though natural gas prices would rise. That proved to not be the case as natural gas got even cheaper. I sold the stocks because they were going down in value rapidly and it would take a major increase in the price of natural gas for them to have a chance to recover. If you have a 30% loss in a stock, it take a 42.9% gain to recover that loss. You don’t want to have to hope for a 42.9% gain just to get back to even, so it makes sense to sell a stock before it has such a big loss in value.

Another reason to sell a stock is because it has gotten too overvalued. If a stock has made you a lot of money, but now sports an extremely high P/E ratio it might be time to sell. If a stock has a much higher P/E ratio than comparable stocks you need to make sure there is a good reason for it being so highly valued.

One more reason to sell a stock is because it represents too much of your portfolio. If you try to keep a diverse portfolio of stocks you might want to sell a stock when it starts to represent too large a portion of your portfolio. I did sell part of my position in one of my stocks because it grown to be a much larger position than the other stocks in my portfolio.

Since I invest in dividend stocks for dividend income I will also sell a stock when it announces a dividend cut. Usually, when a company cuts its dividend it is having financial problems. Even if the company is cutting its dividend what might be considered a good reason, such as increasing its investment in research, the dividend cut means the stock no longer fits my portfolio. For my portfolio, I want stocks that have a history of consistently increasing their dividends.

A common rule of thumb is to sell a stock when it loses 10% of its value. This rule is ok, but it does have some drawbacks. One drawback is that the loss is sometimes for a temporary reason and you can see that the stock should quickly recover from the loss. Another drawback is that the only selling stocks when they lose 10% doesn’t get rid of stocks that don’t appreciate or lose just a small amount of their value. If the stock has rising dividends I might hold onto it even if the price doesn’t appreciate, but otherwise I don’t usually want to hold onto a stock that doesn’t appreciate in price.

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5 thoughts on “Reasons for Selling a Stock”

  1. Thanks for sharing Soopie 1. The bottom line in investing in dividend-paying stocks is the consistent cash stream that can be generated. I like seeing cash flowing into my brokerage account on a regular basis. May I suggest checking out Charles Carlson’s site BigSafeDividends for some great leads on solid dividend stocks.

  2. You misunderstood the requirement. You CAN buy and sell stocks at any time PERIOD. But if you sell a stock for loss and buy it again within the 30 day period, WASH SALE rule, does not apply. That means you cannot claim the loss for tax purposes. You can still sell and buy. You just can’t claim the loss as tax deduction.

  3. Nice post. It is very difficult to take a decision on the stocks. Every time when i plan to sell my stocks some how i get confused and stop proceeding with the stocks sale. Your article has helped me a lot on learning to take the right decision at the right time.

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