• Skip to main content
  • Skip to primary sidebar

  • Home
  • About Us
  • Contact

Investing Basics: Know When to Sell a Stock

October 2, 2019 by L. Scott Elwell

Selling a stock is an important decision – almost as important as the decision to buy. Unfortunately, while the world is full of buy recommendations, there is very little advice on when to sell.

Many investors make the mistake of holding onto losing stocks too long. Sometimes they compound this error by selling their winners too soon. The results? A remaining portfolio of mostly poor performers.

Successful investors limit their losses and let their winners run. There are a variety of ways to do this; the more popular strategies include:

  • Setting a predetermined sales price.At the time you invest, choose two prices, one below your purchase and another above it.
    For example, at the time you buy a stock for $50 per share, prepare to sell it at $60. Set a low-side “sell” price, too, to limit your loss if the price falls. Where to set these prices depends upon your expected profit and the loss you can withstand if the stock price drops.

Sell the stock if it hits either of these “target” prices. You may reevaluate and change these prices, but only if there’s a compelling, legitimate reason to do so.

  • Another technique uses “moving averages.” You can calculate various moving averages using different stocks and different time periods. These averages are plotted on a graph to reveal trends that help you determine when to sell.
  • Monitoring business fundamentals. Yet another technique is to sell when the company’s fundamental business indicators begin to wane. A few of the important factors are earnings, market share, profit margin, and sales volume. You can obtain this information from the company’s financial statements and from newspaper and magazine reports. The idea is to sell when the stock becomes overpriced in light of these factors.
  • Selling overvalued stock. The price/earnings ratio (share price divided by earnings per share) is one measure of a stock’s relative value. If the ratio is too high, the stock may be overvalued, and it’s time to sell. For example, if a stock has traditionally sold for 20 times earnings and it’s now selling for 40, it’s probably overvalued. Some investors compare their stock’s ratio to the ratio of the Standard & Poor’s 500, again as a measure of relative value.
  • Earnings trends. You might use the company’s earnings to gauge whether the stock will perform well in the future. Some investors compare earnings to other companies in the industry or to the Standard & Poor’s 500. If earnings trail the others by a certain percent, then sell. Other investors compare current trends to historical earnings. Sell the stock if a company’s earnings for the most recent 12-month period are less than the previous 12-month period.

There are, of course, other techniques (and combinations of techniques). If you invest in stocks, be sure to give careful thought to what your selling strategy should be.

There is no consensus on which strategy works the best, but professional investors do agree on one thing: selling stock requires discipline. Any rational strategy is probably better than none at all. Pick one that makes sense to you and stick with it. If you have questions or need help, our team of professionals can help! Schedule time here: http://bastest.yourdmc.com/appointment-center/

Filed Under: Blog Tagged With: Accountant, Accountants in New Jersey, accounting advice, Accounting Finance Consultant, Accounting Firms in New Jersey, accounting help, Bookkeeping services NJ, financial advice, financial advisor, selling stock, stock advice, stock tips, Top Accounting Firms in NJ

Primary Sidebar

Search

Archives

  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • April 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • March 2014

Categories

  • Accounting
  • Blog
  • Business Best Practices
  • Business Tax
  • Client Logo
  • Couples
  • customer loyalty
  • Deductions
  • Identity Theft
  • Inflation
  • IRS
  • Medical
  • News
  • Tax Bracket
  • Tax Breaks
  • Tax Law Changes
  • Tax Preparation
  • Tax Tips
  • Taxable Income
  • Taxable Items
  • Uncategorized

Copyright © 2023 · https://www.bas-pc.com/blog