When to Sell a Stock

It would be nice to buy a stock and be able to hold it forever, but that is usually not the case.  There can be several reasons for selling a stock.  One of the most common reasons for selling a stock is that the stock has changed since you bought it and it is no longer desirable.  I will share a couple of examples of when I sold a stock to illustrate a couple of reasons for selling a stock.

If you follow the Money Pros Index Challenge, you might have noticed that one of the stocks in my portfolio is ERF, which is down 38% this year.   That is a pretty big drop, especially considering the stock market is up about 12% for the year.  The good thing is that I sold all of my stock in ERF in May, thus avoiding most of the decline.  One of the reasons I sold the stock was because I needed cash.  No explanation is necessary for that reason, you should know when you need cash.  The other reason I sold the stock is because it no longer satisfied my reasons for buying it.  I bought it because I thought it would be a relatively stable stock with a nice dividend payout.  It turns out that the stock is much more sensitive to natural gas prices than I thought.  I still think natural gas prices will rebound, but I wasn’t  going to hold onto the stock all the way down while waiting for prices to rebound.  It also appeared likely that the dividend would be cut.  I try to invest in stocks with rising dividends and sell stocks with declining dividends.  The company did end up cutting their dividend after I sold the stock and the price went down even more.  This ended up being a good sell.

A stock that I sold for a completely different reason is GSBC.  This is a bank stock that had its share price hit hard during the 2008 recession.  I thought that the stock price wasn’t a fair value of the company because the bank didn’t have nearly the exposure to failing mortgages that most banks did.  I bought the stock at around $9 and as bank stocks rebounded the price went up to $20.  At that point I felt that the company was no longer undervalued and sold half of my stock.  This allowed me to lock in a profit for the stock and continue to get a free ride on the remaining stock.  The stock price has since gone up to $30 so maybe this wasn’t a good sale.  I am okay with that decision though.

What are some of your reasons for selling a stock?

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