Selling Stocks

Evaluating a stock, particularly a losing stock, is a tricky process because so many factors can influence a stock's performance. Management capability, the vagaries of the stock market, the economy, and conditions within its industry – beyond the direct control of management – all can influence stock performance. But, comparing how a stock is performing against the average of stocks in its industry will give you a first cut indication of how in or out of favor this particular stock holding may be.

In addition, the opinion of stock analysts is often an important data point in deciding what to do with a stock that has neither been warming your soul nor your wallet. The Value Line Investment Survey has a well-earned reputation for offering objective opinions on many stocks. It's available at most libraries. One often cited, but perhaps a bit overly simplistic rule of thumb for holding or selling a stock is: if you wouldn't buy more of it, then sell what you own. After all, there are probably stocks that you would like to buy, so free up some money by selling what you don't want more of.

The most successful investors impose on their holdings a disciplined approach to selling. For example, if a stock is down, say, more than 20% over a six- or twelve-month period, or is down way more than its peer group, the stock is sold. After all, these disciplinarians opine, a stock that has deteriorated rather quickly is more likely to continue its sad trend than it is to suddenly reverse course. Limit orders on stocks you own may help you avoid holding onto a stock that is taking a swan dive.