The question of when to sell stocks you should focus mostly on the overall quality of the shares you hold

Deciding when to sell stocks is one of the trickiest parts of investing. We are programmed to run from danger, and every day the media brings new reasons to sell. But if you sell too often or too quickly, you’ll sell a lot of your best choices way too early, and you’ll never make any serious profits.

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When to sell stocks: What investors need to consider before making the decision to sell

Every case is different. However, you can start by looking at why you bought the stock in the first place.

Suppose you bought because you liked the stock’s earnings and dividend history, and you thought it had a lot of growth potential. These are markers of a high-quality stock. If a stock like that drops after you buy, you need to resist the urge to sell. Instead, update your view.

Did the stock go down because of temporary bad news, such as a single quarter of weak earnings? Or did it drop due to seemingly bad political or economic news in one of its markets? If so, was it a major or minor market?

Or, did it drop because of something more serious that could endanger the dividend and undermine its long-term potential? For instance, tech-stock investors sometimes stampede out of a stock if they hear it is falling behind its competition. That can be a serious problem. However, tech competitors sometimes leapfrog each other as they strive to improve their products.

When to sell stocks: Always use caution before selling high-quality stocks

As a rule, you should be slow to sell high-quality stocks, and quick to sell low-quality stocks. That’s because high-quality stocks make better long-term investments. They tend to recover faster from a setback, and are more likely to go on to new peaks.

It’s essential to invest the bulk of your portfolio in stocks that have some history of sales, if not profits or cash flow. If you break this rule and invest in, say, junior mines or tech startups, you should only do so if you have a high opinion of the value of the junior’s assets and/or business plan, and you buy with money you can afford to lose. After all, you could very well be mistaken about their value. Your low-quality buys might eventually wind up worthless.

When to sell stocks: Low-quality stocks have a high failure rate

Low-quality stocks are more likely to stay down, or take longer to recover.

You need to look at a stock differently if you bought it as a short-term trade or speculation. Stocks with that kind of appeal may be of lower investment quality.

Suppose you bought the stock as a way to cash in on a popular investing theme such as biotech, artificial intelligence, or solar and wind power. There’s nothing inherently wrong with that. Of course, it’s better to take that kind of gamble on a stock with a sound foundation. Stock promoters may try to lure you in by projecting a false aura of progress. If they can spur demand, after all, they’ll be able to sell their holdings at higher prices.

Keep in mind that it’s much easier to promote a stock than to create a growing, money-making business.

You need to be especially skeptical of stocks you bought on a tip from a friend or acquaintance, especially if media coverage spurred you to lower your guard. Purchases like these should work out quickly, if at all. But if a stock fails to rise despite word-of-mouth and media promotion, it probably has limited potential. Be quick to sell if it turns downward.

There are lots of factors to consider, of course, and many grey areas.

Be particularly cautious in thinking about when to sell stocks of blue chip companies

You can cut way down on the times when you really need to sell by consistently buying well-established, high-quality stocks. These stocks can still drop sharply when the economy falters or bad news strikes, of course. But these are the stocks that snap back quickest and most reliably when the trend reverses and bad news comes less often. That’s why it generally pays to hold on to stocks like these through market setbacks. But you need to look at each case on its own, since there are exceptions.

If you stick to high-quality stocks, you generally won’t have to sell before you’re ready, but you may need to be patient with them. What high quality stocks have you sold too soon because of a broad market downturn?