Knowing when to sell a stock is one of the keys to successful investing. That’s why we advise investors to follow an important rule when it comes to rising stocks.

When prices go down, investors naturally focus on when to sell aggressive stocks. However, you also need to consider when to sell after strong moves up by hot stocks.

Our “sell-half” rule says that if you buy a speculative stock and it doubles, you should at least think about selling half so you get back your initial stake. Once you’ve recovered your initial investment, you’ll be able to think more clearly about the stock. Keep in mind, however, that our sell-half rule applies mainly to stocks we rate as Start-up or Speculative.

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When to make an exception with a conservative stock

Every case is different, because each individual has different investment objectives, acceptable risk levels and so on. But, you should generally hold on to high-quality stocks, even if they have doubled in price. One exception would be if a conservative stock makes up too much of your portfolio after doubling — say, more than 8% to 10%. Then you should at least consider taking some profits.

Sometimes well-established stocks rise so high that we advise selling simply because they have gone too high in relation to their current prospects. But as a general rule, you should be slow to sell your conservative winners, and quick to sell at least part of your aggressive or speculative winners.

In general, if a speculative stock doubles and you’ve sold enough to recover your initial stake, you need to consider the makeup of your overall portfolio.

If you find that you are now over-represented in some industry or economic sector, then you will probably want to sell to improve portfolio balance. At that point, there is no specific rule of thumb we’d advocate about selling or holding.

COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members

Do you have a rule you apply when you try to decide whether to sell or hold on to a stock that has had a big rise? Or do you prefer to go by gut instinct? Let us know what you think.