When Should You Sell?

By: Martin Lukac
Submitted: 2007-01-17 16:17:39
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When it comes to the stock market, buying is easier than selling. One of the hardest things to do is know when you should sell.

No matter what, you need to know what you are looking for in your investments. There is a lot that goes on in the stock market. You have to not only consider how much you are making or losing, but the tax ramifications as well.

This is why investing for the long term seems to be the least stressful and most beneficial investment technique. You already know that the market works in cycles, what goes up will go down and then go up and then go down. You simply are hoping that the ups are greater than the downs over time. In most cases, if you are investing for the long term and still have a decade or two to see growth, you should probably stay where you are. Consider moving some of your investments around, but the stock market may still be the place for you to be.

If you investments aren't for the long-term, you need to know ahead of time what would signal the end for you. Many people set a price point up and down that says sell. This is their risk area. Others look to the economy in general or their personal financial situations. Regardless, you have to have an out.

When you have stock investments, you have to keep your eye on the market. There are three factors that usually direct the movement of the stock market: interest rates, inflation and the stability and profitability of key companies. In general, when inflation goes up, so will interest rates and the stock market will slow. That is a generalization. We have recently seen that the economy is often unpredictable. And keep in mind, these changes rarely happen overnight. It takes up to six weeks for a trend to form.

In other words, there is no real way to predict what the market will do. There is history to consider though. And history generally says to watch inflation and interest rates.

If the market is strong, but you have a stock that isn't performing well, you have to look at how much you are loosing. Will the stock go back up? Do you have an exit point already set. Many people will only allow a stock to go down by 7% and then they sell. Keep in mind that selling doesn't mean you are giving up on that investment. There are plenty of stocks out there that are performing well. Just move over to one that fits your goals and your needs.

If your stock is performing well, you may be tempted to stick with it even after it hits your cap for selling. I don't advise you to disregard your out. Eventually, there will come a time when you lose money by not selling when you said you would. Often, a stock will bounce up but come down even further than before. Sell on the up if at all possible. It is harder for a stock to go up than it is for it to go down.

There are so many factors in play here. You can look at your stock's volume, earnings and splits. You have your gut telling you what to do. There are economists out there saying the economy is great, while others are warning of a train wreck.

The key is to avoid all the drama by simply setting yourself a cap on how high or how low you will go from the very beginning. Watch your investments and make your decisions. Then live with them. If you didn't make as much as you could, remember that you could have lost. If you do lose some, remember that you can invest your money elsewhere. You aren't finished. Just know when to leave.

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