Knowing when to sell shares in a company is one of the hardest things to get right as an investor, but is there ever a ‘right’ time to do so?
After 11 years of growth during the longest bull market run in history, many investors will have little-to-no experience in selling stocks, just in buying. The coronavirus sent the market into freefall, from which it has rallied in ways none of us expected
The S&P 500 (NYSEARCA: VOO), Nasdaq (NYSEARCA: QQQ), and Dow Jones (NYSEARCA: DIA) have all-but recovered their January 2020 highs, but with no end in sight to this global crisis and companies still hitting all-time highs for fun, many investors are asking the same question:
When should I sell my stock?
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Reasons to sell shares
Here at MyWallSt we are firm believers in ‘buy and hold ‘til you’re gray and old’, as all markets rise eventually, and with a long-term strategy in place, you will build wealth over time. It is no good trying to time the market, as there are only ever losers in that situation.
But even we know that sometimes it is necessary to sell a stock, so here are some of the reasons it might be necessary to do so.
1. You’ve achieved your goal
When you set out on your investing journey, you may have had a specific goal in mind. Perhaps you wanted to turn your portfolio into a ten-bagger, and a rally from Shopify (NASDAQ: SHOP) has helped you achieve that. Or perhaps Tesla’s (NASDAQ: TSLA) latest earnings call has tripled its share price and given you enough money for that dream trip to Hawaii you always wanted. Or maybe you only ever planned to invest until you’re 60 and then spend it all in Vegas.
Whatever the reason, achieving a specific goal is one reason you might consider selling shares, and if you have reached that goal, by all means, spend your money, you’ve earned it.
2. It’s a financial emergency
If we could predict the future then we’d all be trillionaires. There’d be no questions surrounding whether Virgin Galactic (NYSE: SPCE) is a good investment or if Netflix (NASDAQ: NFLX) stock has peaked, and we’d all know who to invest in and when. But life doesn’t work that way, and many people can find themselves in a financial crisis.
A crashed economy, unexpected medical bills, loss of jobs, car/home repairs, you name it. Any of these things and more could constitute the need to sell shares to make up some capital. However, when you start investing it is always a good idea to have a separate safety net in place so that you never need to dip into your portfolio to raise funds. Your portfolio should be there for long-term growth, and kept that way.
We really just don’t like selling.
3. It was just a bad investment
Not every investment you make is going to be a winner, that’s a given. What you need to make sure is that the winners far outweigh the losers, or you can sign up for a free trial at MyWallSt and let us pick those winners for you, and do all the heavy lifting.
Did you know that even with the current downturn, our stocks far outperform the S&P 500?
But even we have gotten things wrong sometimes, like all the best investors. Berkshire Hathaway (NYSE: BRK.B) CEO Warren Buffett has even had some howlers, including his ill-fated investment in Kraft-Heinz (NASDAQ: KHC). Some stocks could seem like winners, and then suddenly they’re in freefall. Under Armour (NASDAQ: UAA) was touted as the next Nike (NYSE: NKE) back in 2015. It has fallen nearly 90% since.
It’s good to have formed an acceptable level of loss before you invested in a company, which is the level you will sell, should a stock fall. However, be sure to investigate a stock thoroughly before selling, as you don’t want to offload shares due to a sector downturn. You should ensure that it is just the company itself and not the whole industry that is failing. If an industry such as retail is failing, that could be why your retail investment is falling, and not because the stock is bad. You will need to ask yourself if the stock is still one you believe in or not.
The same goes for the market as a whole. If your investment is falling due to a wider market sell-off, that means the market is going down and does not mean you should sell, as the market will rise again.
Always remember that ‘rising tides lift all ships’.
Shares are bought by other investors in the company, or some form of third-party buyer.
If a stock is in your name, you can sell it whenever you want, but market hours are between 9:30 – 16:00 ET, so transactions are only put through during those hours.
You can sell a limited number of shares instantly at the current bid price, but they will only be processed during market open hours of 9:30 – 16:00 ET.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.