[REVEALED] My 3 Best Tips on When to Sell Stocks
My brother once built up a nice profit in a speculative tech stock that he owned.
He was very excited about the gain and he wanted to sell it. But he didn’t know when to actually pull the trigger.
He was really torn because he knew that the position was speculative. And if the company reported bad news, the stock could get hammered.
But at the same time, the stock continued to climb higher and he loved seeing his gains accumulate!
So he was torn between selling shares and locking in his great gain (but forfeiting some or all of his future profits), and keeping his shares (and risking losing his profits if the stock pulled back).
Ever been in this position?
Know When to Hold… And When to Fold
Knowing the best time to sell an investment is a big problem for many investors!
Sure, it’s a GOOD problem to have. But it’s something that every successful investor has to figure out.
I bring this concept up because if you’ve been investing in the areas that we’ve been following here at The Daily Edge, you probably have a number of positions that have done quite well.
But it also means that you need to have a plan for how to protect those gains and make sure you’re not allowing them to disappear if (and when) the market shifts.
So today, let’s talk about my best tips for protecting the gains we’ve accumulated this year.
Tip #1: Sell if Your Thesis Came True
Here at The Daily Edge, we recommend buying stocks for all different kinds of reasons.
Sometimes it’s because a big activist investor is pushing for positive changes within a company…
Sometimes it’s because we believe a particular company is a prime takeover target…
And other times it’s because a stock is so underpriced that we believe a rebound is bound to happen eventually.
Whatever the case, throughout your time holding an investment, you need to constantly be monitoring whether your specific reason for buying has come to fruition.
If it has, it might be time to hit the sell button.
Tip #2: Sell if Your Portfolio Weights Are Out of Whack
Congrats! You’re sitting on a BIG gain from a speculative tech company like my brother.
Your $1,000 position has now quadrupled to $4,000. But your thesis for buying the company hasn’t completely panned out yet.
What do you do in this case? Do you sell for a guaranteed profit? Or let it ride and wait for your thesis to pan out?
In this case, I recommend you look at your speculative investment in the broader context of your portfolio.
Has your single investment ballooned into a major portion of your portfolio?
What was once just 5% of your portfolio could now be worth 20-30%, depending on how your other investments have fared. Now a big portion of your wealth is reliant on just one speculative company.
That’s a recipe for retirement disaster!
In this situation, I’d recommend trimming down your overgrown winners.
Tip #3: Sell if Your Position is Haunting You
Let’s say that this position isn’t too large in your portfolio and that you did have a strong reason for buying.
However, the recent volatility has you concerned that one presidential trade tweet could sink the market — and your winning investment.
In this example, I recommend you think back to why you’re investing in the stock market in the first place.
Odds are it’s not for the rush of adrenaline that comes with putting your hard-earned money on the line.
If you’re like me, you’re investing to create a more comfortable life for you and your family. And to support the companies that you believe in and find worthy of growing your wealth.
In this case, it’s important to weigh the stress that comes along with holding your investments against the reward you can expect to gain.
If you’re not living a more comfortable life with your family and are instead constantly stressed and uncomfortable over your investments, it might be wise to sell for the greater good of your well-being.
Bottom line: Debating over the best time to sell out of winning positions is a great problem to have. But it can be challenging to decide whether to “let it ride,” or play it safe and pocket your gains.
The next time you find yourself in this position, I recommend using this quick guide to find out which option is best for you.
Here’s to growing and protecting your wealth!