Should I sell my stocks? Maybe, it’s always a bad idea to sell a good stock for trivial or transitory reasons

“Should I sell my stocks?” or “When do I sell?” are questions we’ve heard frequently from investors over the years

There is no simple, fits-on-a-t-shirt answer to the question. But here are some guidelines for Successful Investors.

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Should I sell my stocks? Resist the urge to sell if the decision comes only from a price change

If a long-time stock you own suddenly begins moving up and then doubles in price, you may decide to sell all or part of it now, in hopes of buying it back “on a dip,” as investors say. Or, you may want to go on to something new that has not yet had a substantial rise.

The problem is that you are basing your selling decision mainly on a change in the price. But the price change almost certainly reflects other, more fundamental factors. If you only look at the price, you ignore these fundamentals.

Should I sell my stocks? The Successful Investor approach asks you to first consider these 3 guidelines  

1. Be quicker to sell low-quality stocks, and slower to sell shares of high-quality stocks you’ve bought following our Successful Investor approach.
2. Before you sell, ask yourself this: does the stock have a poor outlook? Or, do you want to sell because it just doesn’t seem to fit your portfolio? If neither condition applies, and you just think it has gone up too far or too fast, then you should ask yourself if selling will improve your portfolio.
3. Avoid portfolio tinkering—again, this is especially relevant when it comes to selling stocks that you feel have gone up too far and too fast. To succeed as an investor, you need a big winner in your portfolio from time to time. One key fact about big winners is that they tend to go up further and faster than most investors expect, and they keep doing it for years if not decades. If you sell them when they’re just getting started, you may never experience the joy or profit of having a big winner in your portfolio.

Should I sell my stocks? Bull markets test investor resolve

In any bull market, conservative investors frequently wind up selling their best stocks way too early. Often, they do so because their stocks seem to have gone up “too far, too fast” or because “they’re no longer cheap.” These are all bad reasons to sell.

There’s a large random element in all stock-price changes. When it seems to you that stocks have gone up “too far, too fast,” it may mean you’re mistaken about how far or fast they should go up. You may be unaware of good things that are going on out of sight and raising their value. Perhaps these things have already happened, and the stock is going up as the news spreads.

In a secular bull market, “they’re no longer cheap” is a particularly insidious rationale for selling. As time passes and the rise continues, investors get more confident. A virtuous circle develops. Investors are willing to pay ever higher prices for earnings, sales and improving prospects, and this leads to higher levels of earnings, sales and prospects, pushing investor confidence and stock prices higher still. Eventually the fun ends, of course, but conservative investors tend to underestimate how long it can last.

If you sell when stocks are simply “no longer cheap” (or are “fully priced,” as a broker might put it), you could miss out on a lot of profit.

Reasons to avoid selling blue chip investments

Instead of selling a blue chip investment for trivial or transitory reasons, focus on its long-term potential. Blue chips can fluctuate widely and they will suffer in a long-term market downturn, but they offer a higher probability of long-term gains.

It’s all too easy to sell a blue chip investment that looks like it’s headed for a downturn, only to buy another stock that is headed for a collapse. For that matter, if you make a habit of selling whenever you feel the market’s risk has gone up, you will wind up selling your best stocks way too early.

You can always find a rationale for selling. Market commentators are continually thinking up new ones, based on recent market strength or weakness, historical market patterns, political or economic predictions, changes in tax policies—the list is endless. This is a good thing. After all, you can only buy a stock if somebody who owns it wants to sell.

Before you act on a selling rationale, take a broader look, to see how it fits into our Successful Investor philosophy. Consider the facts about the blue chip investment, and about your investment goals and temperament. If the selling rationale makes sense and you find additional good reasons to sell, then selling may be the right thing to do. But, as mentioned, it’s always a bad idea to sell a good stock for trivial or transitory reasons.

What has been your worst mistake in selling a stock too soon?