Investing 101: Know When to Sell Stocks

Source: Thinkstock

Source: Thinkstock

No matter where it originates from, everybody loves a hot stock tip. Whether it comes from cocktail parties, taxi drivers, or the golf course, nothing screams sophistication like discussing the next big moneymaker. However, with many sources focusing on when to buy, people tend to give very little thought ahead of time on when to sell.

When is the right time to sell? The answer depends on your personal financial situation as well as company fundamentals. You should ask yourself two important questions to help sort through emotions: Are my stock picks keeping me up at night? Would I buy these stocks again if I had a mulligan? If your portfolio is consistently keeping you awake at night with regret, something is flawed with your investment strategy. You’re likely too heavily exposed to risk and should make adjustments, sooner rather than later. Delaying a course correction will only hinder your ability to think objectively.

Clinging to stocks that are not suitable for your risk tolerance level also brings along opportunity cost. In addition to losing a good night’s sleep, you are keeping money away from more suitable investments. If your portfolio is weighed down by major losses, hanging onto the losers may keep you from investing money in more attractive areas of the market. This does not mean to automatically sell your under-performers, but if you made a mistake in buying the stock to begin with, hope is never a good strategy to recover your losses.