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I have a collection of stock that on average have grown 8% in the last few months. Should I sell now? This is a normal account, meaning tax is of no help.

I never understand why people sell while stocks are going down, and buy when they are going up. Please, any references or further reading you can provide would be helpful.

  • The way to success in the stock market: sell high and buy low. The trick? Timing when the highest high and lowest low are. Better than missing it the peak? Selling a bit early. What this doesn't take into account? Dividends, which help you out greatly if you hold onto your stock for many years. – justkt Nov 5 '10 at 13:30
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    If you're selling your stocks now, you're going to get a bunch of Money. That Money isn't going to earn you any more money, and is liable to be subject to Inflation, so if you're not planning to spend it anytime in the next couple of years, you're going to want something to do with it. Got a better place for it than stocks? – fennec Nov 5 '10 at 14:10
  • @fennec. I like your logic. I just don't know enough to take it out, and I am afraid that will go back down. – Geo Nov 5 '10 at 14:17
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    FYI I've removed the specific stock listing. The question stands without specific mentions and with a list of specific stocks it becomes off topic because the information is too time specific (close reason = too localized). See a related meta discussion – Alex B Nov 5 '10 at 14:30
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    I like to decide the criteria for selling before I buy. That avoids impulsive trading, which is almost always bad. – James Roth Nov 5 '10 at 17:50
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If you feel comfortable taking an 8% gain on your stocks, then yes, you should sell.

It is generally a good idea to know when you want to sell (either a price or %) before you ever actually buy the stocks. That helps from getting emotional and making poor decisions.

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    Yep, and if you end up selling a stock with a nice gain, be happy with your choice to sell and the gains you earned. After all, you did make money. Re-purpose the funds and enjoy life. – Troggy Nov 5 '10 at 19:14
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I reread your question. You are not asking about the validity of selling a particular stock after a bit of an increase but a group of stocks. We don't know how many.

S&P One Year

This is the S&P for the past 12 months. Trading at 1025-1200 or so means that 80-100 points is an 8% move. I count 4 such moves during this time.

The philosophy of "you can't go wrong taking a gain" is tough for me to grasp as it offers no advice on when to get (back) in. Studies by firms such as Dalbar (you can google for some of their public material) show data that supports the fact that average investors lag the market by a huge amount. 20 years ending 12/31/08 the S&P returned 8.35%, investor equity returns showed 1.87%. I can only conclude that this is a result of buying high and selling low, not staying the course. The data also leads me to believe the best advice one can give to people we meet in these circumstances is to invest in index funds, keeping your expenses low as you can. I've said this since read Jack Bogle decades ago, and this advice would have yielded about 8.25% over the 20 years, beating the average investor by far, by guaranteeing lagging the average by 10 basis points or so.

A summary of the more extensive report citing the numbers I referenced is available for down load - QAIB 2015 - Quantitative Analysis of Investor Behavior. It's quite an eye-opener and a worthy read. (The original report was dated 2009, but the link broke, so I've updated to the latest report, 2015)

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It depends on what your investment goals are. Are you investing for the short-term or the long-term? What was your reason for investing in these stocks in the first place? Timing short-term fluctuations in the market is very difficult, so if that's your goal, I wouldn't count on being able to sell and buy back in at exactly the right time. Rather, I think you should think about what your investment rationale was in the first place, and whether or not that rationale still holds. If it does, then hold on to the stocks. If it doesn't, then sell.

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There is an approach which suggests that each weekend you should review your positions as if they were stocks to be considered for purchase on Monday. I can't offer advice on picking stocks, but it's fair to say that you need to determine if the criteria you used to buy it the first time is still valid. I own a stock trading at over $300, purchased for $5. Its P/E is still reasonable as the darn E just keeps rising. Unless your criteria is to simply grab small gains, which in my opinion is a losing strategy, an 8% move up would never be a reason to sell, in and of itself. Doing so strikes me as day trading, which I advise againgst.

  • While the mysterious unidentified security (cough too obvious) sounds like it still has merit as a snazzy stock, if the value of your position has grown that much, it might also be worthwhile to look at your portfolio overall and see whether you should be diversifying. I think positively of my company stock, but after a couple of options exercises and an ESPP purchase, it was something like 80% of my portfolio. That's just not healthy. – fennec Nov 5 '10 at 22:24
  • No doubt. It's a small enough fraction of the portfolio that I'm not concerned. Just trying to make the point - "up 8%" is not a valid reason to bail unless something else changed. In the case of this stock, it may not be the buy it was, but even a 60 fold return doesn't automatically say sell. – JoeTaxpayer Nov 6 '10 at 2:47
  • And 5 years and a 7 to 1 split, the stock I referenced has tripled. Yet, its P/E is still remarkably low. – JoeTaxpayer Oct 22 '15 at 12:03
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You should constantly look at your investment portfolio and sell based on future outlook. Don't get emotional. Selling a portfolio of stocks at once without a real reason is foolish.

If you have a stock that's up, and circumstances make you think it's going to go up further, hold it. If prospects are not so good, sell it. Also, you don't have to buy or sell everything at once. If you've made money on a stock and want to realize those gains, sell blocks as it goes up.

Stay diversified, monitor your portfolio every week and keep a reserve of cash to use when opportunity strikes. If you have more stocks or funds than you can keep current on every week, you should consolidate your positions over time.

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Try to find out (online) what 'the experts' think about your stock. Normally, there are some that advise you to sell, some to hold and some to buy. Hold on to your stock when most advise you to buy, otherwise, just sell it and get it over with.

A stock's estimated value depends on a lot of things, the worst of these are human emotions... People buy with the crowd and sell on panic. Not something you should want to do.

The 'real' value of a stock depends on assets, cash-flow, backlog, benefits, dividends, etc. Also, their competitors, the market position they have, etc. So, once you have an estimate of how much the stock is 'worth', then you can buy or sell according to the market value.

Beware of putting all your eggs in one basket. Look at what happened to Arthur Andersen, Lehman Brothers, Parmalat, Worldcom, Enron, etc.

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In my view, it's better to sell when there's a reason to sell, rather than to cap your gains at 8%. I'm assuming you have no such criteria on the other side - i.e. hold your losses down to 8%. That's because what matters is how much you make overall in your portfolio, not how much you make per trade.

Example: if you own three stocks, equal amounts - and two go up 20% but one falls 20%. If you sell your gains at 8%, and hold the loser, you have net LOST money.

So when do you actually sell? You might say a "fall of 10%" from the last high is good enough to sell. This is called a "trailing" stop, which means if a stock goes from 100 to 120, I'll still hold and sell if it retraces to 108. Needless to say if it had gone from 100 to 90, I would still be out. The idea is to ride the trend for as long as you can, because trends are strong. And keep your trailing stops wide enough for it to absorb natural jiggles, because you may get stopped out of a stock that falls 4% but eventually goes up 200%.

Or sell under other conditions: if the earnings show a distinct drop, or the sector falls out of favor.

Whenever you decide to sell, also consider what it would take for you to buy the stock back - increased earnings, strong prices, a product release, whatever. Because getting out might seem like a good thing, but it's just as important to not think of it as saying a stock is crappy - it might just be that you had enough of one ride. That doesn't mean you can't come back for another one.

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My thoughts are that if you've seen considerable growth and the profit amassed would be one that makes sense, you would have to seriously consider selling NOW because it could take yeoman's time to mimic that profit in the next 10 quarters or so.

To analogize; If you bought a house for 100k and we're renting it for say 1,000/month and we're making $ 250/month profit and could sell it now for 125k, it would take you 100 months to recoup that $25k profit (or 8 years 4 months). Doesn't it make sense to sell now? You would have that profit NOW and could invest it somewhere else without losing that period of time, and TIME is the emphasis here.

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    So, after the great decade on the 1980's, sell? And miss another great decade called the 90's? – JoeTaxpayer Oct 17 '13 at 10:17

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