Know When to Jettison a Stock

The decision to sell isn’t easy. Use our guide whether you’re taking profits or tossing a loser.

- Nellie S.Huang

PART OF THE CHALLENGE OF KAYAKING is seeing the small rock ahead of you for what it really is—the tip of a massive boulder below the water’s surface. Stock investors have to spot potential hazards, too. “Buying and selling stocks is a lot about controlling risk,” says Randy Farina, a senior portfolio manager with Exencial Wealth Advisors, headquartered in Oklahoma City. But knowing when to sell can be tricky. “It’s not easy because there are multiple factors involved. Buying a stock might be easier than selling.”

Emotions can get the better of you. Selling when a stock is down can feel like you’re giving up, maybe too early. And selling when a stock price is rising can feel counterintuitive, even though it may be the best move. You can’t time your exit in a stock perfectly. But some events can point toward opportune times to get out. We walk through five such situations below.

1. A change in fortune. In many cases, the decision to sell a stock should go back to why you bought it. “Know what you own and why you own it,” says Deborah Ellis, a Los Angeles certified financial planner. The reasons can vary: You bought a stock for its dividend payments, or its high-growth prospects or as a speculative bet. In any event, if the stock no longer fulfills its purpose in your portfolio, “it’s time to sell,” says Ellis.