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Let's say I bought 10k worth of stock A and it appreciates to $10,500.

Is it OK to sell part of it worth $500 and do this whenever stock appreciates that much?

Too often it drops back under $10k if you don’t sell, and if you sell all of it then you will miss future profits.

  • Possible duplicate? – Bob Baerker Jul 6 at 13:33
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    Does this answer your question? Best way to take profits while still holding position? – Kevin Jul 6 at 21:41
  • Similar to Buying shares when the price goes down 2% and selling shares when it goes up 2% (disclaimer: which I answered, having previously done a simulation of a similar tactic). The upshot is that – whether you call it "timing the market" or not – it's just as unreliable. Depending on the (unpredictable) future, you may win or you may lose. – TripeHound Jul 7 at 16:21
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    Your last line indicates that you experienced the fundamental reality that the market variations are unpredictable which makes the answer to "is strategy x" good?" no for all x. Also consider that there is fierce competition to find an optimal strategy from a bunch of extremely bright minds. Anything this trivial is being tried and priced in. – Peter - Reinstate Monica Jul 7 at 22:46
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    Most of the answers seem to be missing the point that only $500 would be sold. And the strategy itself seems to be missing the point that the amount of the initial investment is totally irrelevant with respect to deciding what to do next. – Ray Butterworth Jul 9 at 12:47

11 Answers 11

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This sounds like "timing the market" and is not a viable long-term strategy. You buy when you think a stock will go up, and sell when you think it goes down, or when you want to diversify, or when you need cash and it's part of your liquidation strategy. You don't know if the stock will go up or down from here, so selling might be the right decision or a mistake.

So whether it's "ok" or not depends on what you do with that $500. It can be good to reinvest profits in something else to diversify, but selling just because it went up 5% is not a good strategy in general.

If you have a diversified portfolio where one class of stocks has performed better than others, it's fine to rebalance to meet some strategic asset allocation, but selling a stock just because it went up is not a wise strategy for long-term investing.

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    You'd accomplish something similar by having a 80/20 equities-bond split (or indeed, equities-cash) and rebalance periodically. That way you automatically adjust between them, and in effect always 'sell high' and 'buy low'. – Sobrique Jul 8 at 13:07
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This feels like a variant of a sunk-cost fallacy. Don't consider the $10k at all in your investing; there's nothing you can do to get it back.

Instead, suppose someone gave you $10.5k worth of stock. Do you think that stock is the best use of $10.5k? Then hold it. Do you have something better to do with $10.5k? Then sell.

The only place where that original $10k price tag matters is for tax purposes. But that is a much bigger can of worms than you are trying to open.

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    I'm not clear how the original investment is a sunk cost. 'Nothing you can do...'? Like, sell the stock? In this scenario it has increased in value. – Jim Mack Jul 7 at 14:40
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    @JimMack Suppose you spend 10 dollars and you buy candy. Those ten dollars are no more; there's nothing you can do to get them back. MAYBE you could sell the candy for ten dollars, but that has nothing to do with how much you paid it the first time. Maybe now candy costs less and you can only sell it for nine dollars; maybe someone really wants that candy and gives you twelve dollars; maybe you prefer to just eat the candy. Nothing says you can get the ten dollars back. – Simone Jul 7 at 14:54
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    @JimMack "You can't get the same 10000 back"; that was his point. Do you really think he doesn't understand that you can sell 10k to get 10k back? Everyone understands that. He's saying that you have 10.5k... make the same decision with that as you would make if you had 10k less already and then someone gave you 10.5k. If you need 10k for your emergency fund (or some other thing), then sell 10k and put it there. If you don't, then don't. – Greg Schmit Jul 7 at 15:24
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    @JimMack It's explicitly the sunk cost fallacy. The important factors for the value of the stock is the current value of the stock, and how you expect it to change in the future. What you paid for the stock is irrelevant. – Taemyr Jul 8 at 8:57
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    @JimMack You're not getting back the money you spent - you're getting back as much as money. But it's pure coincidence. Does your decision (keep vs sell) have really anything to do with how much you spent initially? Wow, it's up 35%, then what? It could go up 50%. Shoot, it's down 35%, then what? Should you keep it because you want your investment back? That's probably never gonna happen. Forget how much you spend initially (except as a metric, but not one that informs your keep/sell decision). – Simone Jul 8 at 11:29
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It is impossible to know the right answer to this question, specifically.

The best answer is that you should sell when you need the money.

For example, lets say you plan to buy a home in 5 years and choose to invest some of the money for the purchase. Perhaps year 1, you invest 100% in the market, year two 50% in the market, 50% in a savings account, and the rest of the years 100% in a savings account. You do this because you understand that investing in the stock market is for the long term.

You only sell when you are ready to buy a home.

With retirement accounts it is the same kind of thing, but you have a very long horizon. Sell some of your assets when you are retired.

In the meantime it is best to concentrate on your career to earn extra funds to invest. Your future self will thank you and wonder why you did not do more.

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    "sell when you need the money" - you should try to avoid ever "needing" to sell any significant part of a (higher-risk) investment. If there's some sort of recession or pandemic causing the value of your investment to temporarily drop by 30%+, that would be a really bad time to sell. But of course you probably won't manage to time your withdrawal perfectly. – NotThatGuy Jul 7 at 11:38
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There are two simple answers, one of which you provided:

Too often it drops back under $10k if you don’t sell, and if you sell all of it then you will miss future profits.

The other one is that it's your money so it's OK to do whatever you feel comfortable with.

I think that answers like' it sounds like you are trying to time the market' or 'sell when you need the money' are rigid and canned. A more nuanced approach is to define what you are attempting to achieve with this pot of money.

For example, with 1% money market rates, it would take a year to earn $100 on $10k. If your $500 gain was achieved in much less than a year, you have done well from an income standpoint. And extremely well if it took a few days, weeks, even months.

Another comparison would be there are two $10 stocks that you like and you are willing to own. You buy "A" and it appreciates 5% ($10k becomes $10.5k) but stock "B" does not appreciate. Sell "A" and buy "B", ending up with more shares of "B". Note that you will have a taxable short term capital gain on "A" but you're still ahead. Wash, rinse, repeat. Sooner or later a puchase isn't going to work out but you'd be no worse than if you had bought "B" for a long term hold and it tanked. This kind of trading is popular for yield hounds who buy preferred stocks, swapping them when there are 5-10% or more short term gains, bumping up the annual yield.

If you are investing long term, all of this is less applicable.

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I recommend you watch the following video by a former Goldman Sachs trader, where he exposes how the big professional money profits at the expense of the retail trader.

My interpretation of what he says is that you need to invest based on your interpretation of the future, on things you believe will profit for fundamental reasons. You can then do the initial trade based on timing the market. But make sure fundamentals are right first. You must then not alter a trade shorter term, because the system is designed for money to flow from retail traders who trade too much money too often to the big players who trade based on fundamentals and hedging, and who make money slowly. The moral is that you could cash in the surplus, but dont do this too often, eg invest and forget for 3 months, and then cash in $500 as you wish, but as soon as you do this, dont look at the graphs for another 3 months: devise your own rationale because any rationale which too many follow will fail.

Basically if you trade too often, you will steadily lose money because you are fighting with the noise of the graph, and thus lose on the costs eg broker commissions. You need to give it time, that way the underlying fundamentals break through the noise. ie the graph is fundamentals + noise. You cannot progress trading the noise, because just trading against noise all your money will gradually vanish on the spread, on brokerage fees, on taxes, etc, ie the stock market is a casino as regards noise, eg over 1 month its a casino. With a casino each time you place a bet, statistically you lose perhaps 3%. So the more money you bet the more money you lose SHORTER TERM. Its the difference between betting £38 on one match by Liverpool, versus putting £1 on each of their 38 matches over a season. Anything can happen in one match, but over a season they will do well.

if the noise takes the $10000 to $10500 its irrelevant because later it will go there again, but eventually the fundamentals will take it to $10700 etc. As with a casino, even if each time you cash in from the $10500, you will gradually lose money, because a casino is designed for a thin margin to be statistically lost each time.

The fundamentals grow slowly and shorter term the noise is much bigger variance. But if you give it time, the fundamentals outdo the noise, and at that point when the noise and fundamentals align you will have eg $10700. Now you could misjudge and the fundamentals descend. But you need to allow time to determine this, and then to quit as you misjudged. Now if after a year of no trades, it still isnt progressing, at this point you could just quit when it does reach $10500 because you misjudged the fundamentals. An example of fundamentals is that petrol and diesel are on the way out for cars, nuclear is on the way out for electricity, and solar + wind are on the increase. But you need to research the timescales of each, and invest based on that expected timescale and eg in geographies at an earlier point in the transformation. But if you just make decisions on graphs, you will gradually fail, because you are reacting to the noise of the past, rather than the fundamentals of the future.

https://www.youtube.com/watch?v=L7G0OfJUON8

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It depends. As mentioned in another answer, it depends on what you do with the $500. Here, I expand on this concept with an example.

You own shares of a stock. It goes up 5% and you now feel the stock is expensive and has high exposure to a possible downturn. It may be wise to reallocate your portfolio by selling some (or possibly all) of the 5% gain in order to increase your stake in a less exposed asset such as government bonds. In this case, no money leaves your overall portfolio, you merely shifted exposure from an exposed asset to a less exposed one. Then, during a downturn, you can move the money the other way, as your less exposed portion of your portfolio has retained its value during the downturn and would be considered expensive relative to its return in comparison to the original stock (which now looks cheap due to the downturn).

This all assumes you are optimizing your tax hit when selling. A wiser approach, if you can afford it, is to reallocate by purchasing rather than selling. In such a model, you stop putting more money in the expensive stock and start purchasing the less exposed asset until your portfolio is “balanced”. Balanced is up to you to define, though in general, you would want new money always going to the asset that looks the cheapest relative to other assets in your portfolio. In times when stocks look expensive, new money might go to government bonds, in times when stocks look cheap, new money would go to the stocks.

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There's nothing at all wrong with selling if you have made a profit. That's the whole point of investing, right? Your threshold for when your profit is high enough is relative to your own situation and investment style. You don't "realize" losses until you actually sell, and likewise you don't realize gains until you sell. While you own the stocks, funds, bonds, etc. they will always go up and down. Resist the urge to sell out of emotion, however. If you invest $10K and in a few years you now have $20K, there's nothing at all wrong with a strategy of selling all of it and reinvesting or holding it in cash until you are ready. Don't listen to people that try to sound like experts with all of the theories and investing jargon. Bottom line is an investment is there to hopefully make money for you. You will need to liquidate it to some degree or completely eventually anyway, otherwise you are not going to ever benefit from it. I buy and sell regularly. I take my profits and then invest in other things. I have amassed a substantial amount by doing this over 20 years and being mindful of the business cycles. IMO, you should always have money set aside to take advantage of dips and recessions, when 95% of the investors out there run. What you buy is your business and should either be done after careful analysis or at the guidance of a professional.

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I've used a variant of this strategy when gambling on highly volatile instruments, e.g. bitcoin in 2017 or leveraged put options in 2020. What I've done is sell half of the position once the price doubles. That way I've recovered the initial investment and feel more free to wait to see what happens with the remaining money.

However, the strategy only makes sense when you expect that the stock will be coming back down, but do not know exactly when. For investments in actual companies instead of short term bets, a better strategy is just to hold, with occasional balancing if you feel a particular stock forms a too large part of your portfolio.

The difference is that most company stocks can be expected to rise on average, with random ups or downs. Short term bets have no actual business behind them, they are just bubbles and holding too long is the easiest way to lose.

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Problem is you never know when it will drop (and will miss out on the extra profit). You could use a trailing stop-loss order. In which you say (for example) a stock can drop a maximum of €1.20 below its maximum.

If the current price is €14.00 it well autosell at €12.80. If the price goes up to €14.30 first, then it will autosell at €13.10, etc.

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It's okay to sell to sell your shares whenever you want or need to. I don't know what's going on in your life.

From a financial perspective, it's not advised that you reduce your position just because the value of it went up by an arbitrary amount. As Teepeem points out (reworded) - think of this as "I have $10,500 invested in Company A. I should do whatever I think is best with it." If you need $500, or $5000, it's okay to liquidate. If you have other investments you'd prefer you money in, it's okay to liquidate. There's nothing particularly good or bad about selling any particular amount - it's all about what you do with the money.

If the company was correctly valued and has become over valued, AND you think it will return to a correct valuation - that's a different story. I prefer using a stop-loss for something like this unless it's very overvalued.

Be careful if you are trying to time the market.

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Ignoring the increased dealing costs of repeatedly selling small amounts of stock, this plan has a fundamental flaw.

Eventually, you will have 100% of your money invested in stocks which went down, not up, and which will probably never recover their original price.

If you think you are clever enough to pick stocks this way, you want to do the exact opposite of your plan: sell if the price does down 5% from its peak, or from what you initially paid for it.

That is not a very sensible investment strategy either, but at least if you get lucky and buy the next Apple or Microsoft near the start, you will probably still own the stock 20 years from now when it is worth 100 times what you paid for it.

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