Lo and behold, your stock has just hit orbit and it’s time to pass the baton. But, you’ve made it this far, so you might as well stay along for the ride. As investors, we’ve all been there, faced with the decision of whether to sell all or sell half, sell all or sell 75%; you get the picture. Here, we’re going to cover the when and why of selling your stock – as well as some of the pitfalls along the way.
First of all, there are many reasons to sell, some personal and some related to what the market is doing.

Market-based reasons to sell that stock:

When the stock is over valued.

When stocks get pushed up past their true value, it won’t be far away from a fall. A good idea is to sell when they are over valued, and if you want to, buy them back after the fall. Of course, this strategy requires that you have either clairvoyant powers or an accurate knowledge of the top and bottom prices. Since it can be extremely difficult to estimate the exact top and bottom prices, a fair amount of luck is involved. A rule of thumb is to “buy over the bottom, and sell under the top”. If it goes up after you sold it, which sometimes happens, don’t get annoyed. It’s better to be safe than sorry.

Your stock starts to dramatically drop.

if you are more interested in buying stock as a trader than as an investor, you may set yourself an arbitrary floor for the stock. When the stock price decreases as low as this floor, you sell. Many traders set that floor in the 6% – 8% range, depending on the volatility of the stock. Nobody likes a small loss, but using this strategy, you won’t come away with a big loss. Near the end of this article, we’ll explain about stop-loss orders you can place with your broker.

Investor interest in the stock declines

At times, a stock may fall out of vogue, or the company becomes quiet and then investor interest falls. When that happens, liquidity falls, and it becomes harder for buyers and sellers to meet. Then it may be a good idea to reduce the position in the particular stock.

The company mission statement goes AWOL

Often, as an investor, you bought the company’s shares based on its business plan and growth potential. If the company starts down a path, which both you and the market believe is a really bad direction, you may have to examine if it is still the same company you bought shares in.

Your personal reasons for selling may include:

Stock-induced stress.

Your stock’s price is such a roller-coaster that, if you don’t dump it, you’ll lie awake in bed worrying instead of sleeping.

Some financial calamity befalls you.

In this case, it’s good to have an emergency fund that is not tied up in your investments. Liquidating your stocks is not an ideal way to pay your bills.

You’re feeling conflicted regarding the ethics of the company you have invested in.

If the ethics of a company are violating your principles in some way, it’s better to find a company more congruous with your value system. It’s more beneficial for your investing if you’re passionate about a company that you own shares in.

You’ve reached your financial goal for your stock.

You may have trouble selling sometimes because of that enduring human factor – greed.
Although this example is imaginary, it happens all-too-often in real life. Let’s look at an example below

Greedy Examples:

Your plan is that if your $20 stock goes all the way up to $30, it’s time to sell. Well, imagine it does well and it reaches $30. Suddenly greed comes in and starts to mess with your principles. You now decide to try and hold on for a couple more dollars. Hey, it went up to $32 – and you know what? Greed says to you, “hold for a little more”. Suddenly, the market takes a dive and your stock plummets back down to $28. Then you think to yourself that you will now definitely go back to your original plan of selling when it returns to $30. Unluckily for you, this never happens and then your stock drifts all the way down to $18. The sick feeling in your gut and pure frustration forces you to sell your stock below the initial price you paid.
Remedy:
You need to realize that very few investors will buy at the absolute bottom and sell at the absolute top. If that happens, it’s probably a stroke of unusually good luck. Warren Buffet, one of the most successful investors, succeeded by simply buying at one (fair) price and selling at higher price – regardless of the absolute highs and lows.

Stop-loss orders

No how-to article on selling stocks would be complete without mentioning stop-loss orders. Simply put, a stop-loss order is a price you give to your broker, which tells him to sell as soon as your stock falls to a given price. This is a way to minimize your losses. This is especially useful if you’re going away somewhere to a deserted island and you have no way to monitor your stocks. And it is just plain common sense. Sometimes, in a dramatic free fall, it might fall a few extra points – but it’s better than bottoming out altogether.

Before you sell, consider all the alternatives and consequences, and the reason for why you want to sell. There is nothing wrong with admitting a stock is not working for you and moving on.