As an investor, it’s important to know when to sell a stock. While there’s plenty of information on buying stocks and investing strategies, there’s not as much coverage on when to sell a stock. Selling a stock is just as important as buying one, yet many investors don’t have a sell strategy in place.

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When to sell a stock is not as widely talked about.

I would say that selling can be a lot more challenging than buying. Watching stocks run up or being influenced by others around you can trigger certain emotions to sell. Not having a selling discipline is one of the reasons investors get the timing of selling wrong.

In your investment thesis, you need to think about what would trigger a sale. However, knowing when to sell involves more than just the individual security perspective. You should also consider personal reasons, portfolio management, and the greater economic picture.

In this blog, we’ll go through a list of reasons to sell a stock that I have either personally followed or come across. We’ll also take a look at some reasons not to sell a stock. Remember, the goal of investing is to create wealth, which means buying a stock at the right price and selling it at the right price. Don’t get too caught up in what the super investors say without considering your own strategy. “Our favorite holding period is forever” Warren Buffett.

For most private retail investors, discovering those forever stocks is an incredibly rare occurrence. If you do find them, holding on to them over decades is how you can create significant wealth.

If the job has been correctly done when a common stock is purchased, the time to sell it is almost never.

Philip Fisher

However, along the way to finding a forever stock, you may often make a high number of buy and sell decisions over your lifetime. Personally, I consider myself a buy-and-hold investor. I prefer to hold smaller companies and stay invested as they grow through their business life cycles. However, this doesn’t mean that I hold on through thick and thin when issues arise. Sometimes, selling is necessary.

Investors need a Sell Discipline and Track Record.

Investors often find it confusing to assess a sell track record. When asked about their investing journey, they tend to share more stories about the great stocks they bought rather than sold. Many investors lack a sell discipline, which means they fail to reflect on their sell decisions to see how they went. Improving investing requires feedback loops, and examining failures can help improve sell-side decisions.

After selling a stock, it’s essential to check in to see how it’s performing periodically. This can be challenging, particularly if the company has experienced significant growth. Emotional reactions like “I should have held on”, or resentment may arise, but it’s crucial to ignore them. Instead, think about what you could have done better. Was your decision reactionary, warranted, or short-term? Understanding whether the decision could have been avoided is key.

On the other hand, if the decision was sound, and the company went to zero, it’s important to understand what caused it. Look for warning signs so you can apply them to other companies and ideas. Tracking performance and returns is crucial for all investors, but tracking sell decisions is equally essential. How good are you at selling? Not buying.

Do you exit too early? Are you letting your winners run? Do you sell based on emotions and fear without cross-checking with your thesis? It’s amazing how many investors put time into the checklist, thesis, and research and then sell without consulting the same thesis they purchased the stock on. Are the fundamentals changing? Is the company broken? Is it temporary? Could you have seen this issue arising in the thesis?

That’s why having a sell discipline grounded in the investment thesis and research is critical. It’s also why we include bear cases in the research process.

Reasons TO sell a stock.

I usually don’t sell my investments unless there’s a clear reason to do so. The reasons I might sell are if the thesis behind the investment no longer holds, if there’s a better opportunity to invest in, or if I need the cash for something else. I invest with patient capital and never with funds that I depend on, which eliminates many of the reasons other investors might face for selling.

I don’t sell for tax reasons or tax loss harvesting, and I’ve never really rebalanced my portfolio either. The idea of trimming winning companies back to a smaller position counter-intuitive to what I’m trying to achieve. If a company I invest in grows over time to become a large percentage of my portfolio, and the fundamentals and thesis are still sound, I don’t mind letting it run. If I want to take profits off the table, I might skim the position, but only if I find a better investment opportunity.

When to sell is different for every investor, but one thing we all tend to follow is the principle of not losing sleep over our investments. If my portfolio, positions, or investment decisions are keeping me up at night, I know I need to address something. Selling over time is something that comes with experience, and you develop a feel for when things need to be addressed.

I don’t sell out during major downturns, as I’m focused on buying good companies that I want to hold through all cycles. Most of my own sell decisions are due to a break in the thesis. If I made a poor decision, missed certain fundamentals, or the company can’t deliver on the original thesis, I exit.

Here are a few of the reasons investors sell that I’ve come across.

You need the cash.

If you need the cash, whether for a personal expense, to pay bills, or to fund something worthy of selling an investment then it is a good reason to sell. Don’t sell for reasons that are temporary and can be resolved in a short time frame. Don’t sell for things that have no value.

For me, I may sell to buy a house, reward my wife and me, or for a big trip to create memories with my family. Remember we are in this game to create wealth. So, selling for valid reasons is ok. If you also need cash for personal reasons, to fund a child’s education, or medical expenses, you want to level up your health… whatever it is if the reason is valid then sell. Don’t sell to buy lottery tickets.

The Thesis Breaks.

If the thesis breaks, then it is a good reason to sell. It could be from management not delivering, multiple missed goals, or a competitor entering the market. It could be changing company fundamentals and a declining market share. I sold because of accounting irregularities, there were issues with the accounts, and I no longer trusted the company. When companies start to excessively dilute shareholders, or perhaps make acquisitions decisions that I don’t agree with, I exit. When a business is allocating capital poorly, or perhaps executive turnover starts to increase I also lose interest.

If the thesis is no longer valid, and when I can no longer say I brought this company because it was going to achieve this… then I exit. This is one of the key reasons I sell a stock. If I am no longer confident in owning a company as the bear case starts to play out, I exit. It should probably be the main reason long-term investors sell a stock.

You made a bad decision.

This is an extension of the above. I make bad decisions all the time. Maybe from being biased in my research, from rushing, from not digging deeper, or perhaps just not trusting my instinct. We make poor decisions all the time in life. That is why it is key to slow down, think through every decision, have a checklist, and thesis and a buy discipline which can help shape a sell discipline. I’ve sold because I brought companies with prospects that soon appeared to not be realistic.

I’ve backed the wrong management; my assessment of the team was incorrect. I’ve also made bad decisions about the health of the business; the financial strength was not as good as I assessed. This came from not understanding financial statements and accounting. If I have made a bad decisions and it becomes apparent, I exit.

Opportunity Cost.

Opportunity cost is another top reason why many investors, including myself, sell. If I have a portfolio of companies, what I am saying is these are the best in their field. If something better comes along than something I am holding, why wouldn’t I want to sell it and buy the better opportunity? Investing is about opportunity cost. I have sold stocks to purchase real estate, for example, the opportunity and return outweighed some of the investments I was holding.

Now don’t get confused and think this is about tinkering, and constantly moving things around. All opportunity cost decisions are grounded in a lot of research and process. The decision to sell an existing company you’ve put the work into must be warranted and worth the new prospect.

So, if a better idea presents itself and deserves a position in your portfolio then that is a great reason to sell or trim a position. Understanding opportunity cost is a core component of wealth creation.

Rebalancing your portfolio.

Rebalancing is a very common reason investors sell. They may have a certain portfolio sizing requirement, an asset allocation requirement, or a portfolio criteria discipline. For example, an investor may keep a 60/40 split in stocks and bonds. If stocks, go on a run and the portfolio dislocates to say 80/20 then the investor sells down stocks to keep the balance.

The same theory if an investor has a weighted portfolio criteria that says no position can be greater than 5% then they would trim positions that increase beyond this. Rebalancing is heavily governed by your investment strategy and is often associated with a Strategic Asset Allocation and Tactical Asset Allocation strategy. Rebalancing can be around risk management, going to cash in harsh markets, and loading up on equities in the right cycle. So selling stocks to rebalance is common.

Valuation Achieved (Intrinsic Value).

Selling when your valuation has been achieved is a great sell decision. If you are investing in undervalued securities or perhaps with an intrinsic value target in mind, then selling when a company has hit that is a valid reason. This will be based on your initial thesis which will always include a target exit price to establish intrinsic value.

I also use a similar principle. If I invest in an undervalued situation I have an exit price in mind. Even in a growth company, I may have a price target, or a certain multiple of my capital and I exit when it is achieved. This sell decision requires deep valuation work and investors often have a good understanding of the workings of the business.

Understanding the intrinsic value of the business and using various valuation methods will help decide the appropriate exit price. I’ve seen most investors exit based on the intrinsic valuation being achieved using a target between two price points. For example, I buy a company at $1 a share, intrinsic value is between $1.70 and $2.10. I am happy to exit between those prices.

The Company is acquired.

This can be a pain if you are a long-term holder. It can be great for a short run of the stock price, however after all the effort to buy a company, I want to see greater returns. In the small-cap space acquisitions and mergers are very common. If you are picking high-quality companies, chances are they will get swallowed up by private equity or other public companies.

It can be frustrating; the return is usually always positive but you often buy a company because it is good quality and has a long-run way of growth ahead. If a company has a takeover notice I exit. This is because there is no further opportunity to compound capital. So, I move to the next one.

Insider Selling with noticeable volume.

When large insider sales occur, I pay close attention and most of the time it warrants an exit. Insider sales it is not usually a deterrent for me to exit, as management are just humans with needs outside of the company. In large trances, it becomes an issue to pay attention to. There are a lot of misconceptions about insider activity. Shareholders forget management has needs, obligations and financial goals. It is not always due to declining fundamentals in a company.

However, when several managements start to liquidate on the open market. Something usually is wrong. Or perhaps a CEO or founder starts to offload. It usually is one of two reasons, they know something we don’t, and the company may have issues, or they are moving on. This is another reason for me to sell especially if I have backed a company with the right leader behind it. Skin in the game is crucial.

Macroeconomic factors.

The macroeconomic factors and market cycles are common reasons investors liquidate and sell. Think about the Global Financial Crisis or covid. If the outlook is doom and gloom and your current holdings are giving you some concerns, then it may be time to exit. The whole idea of staying fully vested and awaiting a bounce back is easier said than done. You can make money in a downturn.

If an investor has been topping up and deploying at all-time highs, the bounce back after a crash can take years, and most times doesn’t happen again on certain individual securities. If your portfolio is keeping you up at night, and you fear losses, then ignore what others say. Protect your downside. Hold the companies you know inside and out and have conviction in. I’ve sold sometimes in this case. The last time was a fantastic company in logistics, however, with the supply chain squeeze and other global issues around exporting and importing, inventory piled up, working capital was strained, and the company had a cash issue. Out of nowhere. Time to move on.

When your goals are achieved.

This may be a rarity for many, but when you’ve achieved your financial goals and perhaps don’t need to take on as much risk many investors sell or deploy capital to lower-risk opportunities. I’ve met a couple who have cashed out entirely because they wanted to enjoy life and knew they didn’t have the time to commit to achieving the returns. If you have achieved your financial goals and want to decumulate your net worth, then it can be a valid reason.

However, most successful investors stay invested and keep investing until they die. It’s an obsession, a passion, the money is not the end goal. The hunt, the success, and the thrill of practising an art you have refined over a lifetime is enough satisfaction.

Change in Investing strategies.

Another reason to sell stocks is when you have decided to change strategies. Changing strategies is never advised just because you think it is greener on the other side. However, I’ve seen investors change strategies as they have built up enough worth, no longer have the time for active stock investment and change philosophies. They may need income now and focus away from capital appreciation.

They may adopt a passive strategy as they don’t have the time for active stock selection. The idea is usually to stay fully vested, however, change the investment style to suit the new objective. Over the years I may change to income-focused investing as I get older. So, this means liquidating a portfolio to achieve the next objective.

Tax Time or Tax loss harvesting.

Tax loss harvesting and selling at tax time must be one of the most popular reasons. Claim the write-offs, and capital gains taxes and pay your tax bill.  Tax loss harvesting is incredibly popular. Locking in paper losses, although frowned upon, is what a lot of investors do. So sell decisions can often be grounded around the financial year ending.

You don’t want to follow the company anymore.

This one is an interesting one, however, I’ve found over many years I have on the odd occasion cashed in and moved on from a company. Purely, because it became boring. I didn’t want to read about the company, I didn’t want to research it. There may have been too much noise around the company. I admit earlier on this drove decisions. I brought it in and got bored. Over the years I buy companies not “stocks” so am focused on companies I want to own for a long-time frame.

I think it is a valid reason to sell. If you have lost interest, then that can be an issue. You may ignore certain information, not put in the research, and stay up to date with your holding. So, it’s best to own ideas you will put the work into. This may be frowned upon, but as an entrepreneur, my greatest successes came from the ideas I was focused on and committed to. Companies I lost interest in never materialised to their fullest potential.

Reasons NOT to sell a stock.

Now we have gone through a few reasons to sell a stock, let’s go through reasons NOT to sell a stock. This is going to be grounded in a lack of a strategy, having a buy discipline (thesis), emotional investing, or being influenced by those around you.

The stock has gone up or down.

A lot of investors sell when a stock runs up. They also sell when a stock falls. Selling because of seeing red or green without understanding what’s causing it is not a great sell decision. Look to the thesis, if you don’t have one, get one. You need to know what the underlying company is doing.

By understanding your holdings, you won’t be swayed by sudden jerks in the share price. When an investor sells because of a price run or crash, I often ask “Why did you buy it in the first place?”. That is the problem that needs to be addressed. Selling because a price went up on a company you expect to go up is not a reason to sell.

Let your winners run. It is hard to not take profit off the table. If a stock doubles, that lure to draw profit is hard. However, you must have faith in your work. If you believe it is nowhere near the greater opportunity, have the conviction to hold.

A fund or investor you follow sells.

Following fund managers and other investors can be a great source of investment ideas and education, however not always great for sell decisions. All their needs are different. A fund has different objectives and incentives. Selling to rebalance, or a host of other reasons is guaranteed not going to be the same reason for you to sell.

As Independent Stoic investors, we report to no one, we have no milestones and performance criteria to achieve. We can afford to be patient and with a long-term perspective. Other investors may have different financial goals, and different takes on an idea. That is why you need independent research and your view before buying. While someone else selling can certainly raise the question of why? You should never sell without digging beneath the surface.

Short-term Problems.

All great companies had short-term problems. Everything worth holding onto in life will have short-term hurdles to overcome. Long-term marriage isn’t peachy 24/7, a healthy fit lifestyle does not come without injuries. The same goes for investing and ideas. Companies will face setbacks; they will face a range of issues.

A company facing short-term problems is not a reason to sell. Investors often sell when an earnings beat is missed, or a short-term objective is missed. Maybe my pushback is because of my business experience, nothing works in a straight line. I’ve faced issues for years in a company, all sorts of challenges, and then in year 3 or year 4, we got it right and went on to make $$$. If I had given up because of short-term issues, we wouldn’t have succeeded.

Investors need to understand Stocks = Businesses. Expect problems to occur.

Temporarily issues happen especially in small caps. Those investors who sell the moment an issue happens often have no real-world experience running a company. Don’t get cold feet, remain vigilant. I’m not saying hold even if issues happen, understand them, look at what needs to happen to overcome them and stay focused on the bigger picture.

You are rewarded because of your risk. You are rewarded because of your ability to be patient and not scared out of great companies.

The economic view is doom and gloom.

Not all doom and gloom will impact you. The media thrive on doom. Don’t be swayed to move to cash because of the media, or the economic outlook looking depressing. Stay focused on the bigger picture, on your holdings.

If every time we reacted to doomsday theories and the world ending, stock market crashes and recessions, none of us would invest. We wouldn’t make money. Remember “Black Swans” are black swans because they happen randomly, the rest of the time it’s just noise. Prepare with vigilance, no what you own and be disciplined to remain independent.

Some pointers to help with sell-side decisions.

There are a few pointers to consider that can help to minimise incorrect sell-side decisions. There may be many more, but these are the core ones I find important.

Liquidity – Never commit funds you may need short term to markets. If you invest money you may need, the first thing to sell is stocks. So, invest with a longer-term mindset in the stock market otherwise don’t invest in public equities. Investors selling to access cash can mostly be avoided by placing “patient capital” at work.

Know what you own – Always understand what you own, ensure you conduct research, a checklist, an investment thesis, valuation model and know your holdings inside and out. This prepares you to have an independent view of the company not swayed by what goes on around you.

Let winners run – Never sell because a company seems overpriced, what does that even mean? If a company has proven to be great and still has life left, trim it then, on the basis that some opportunities warrant investment.

Have a Plan – Have a plan, then stick to it. Define your investment criteria, philosophy, and goals before starting. Don’t buy and research later. Investing is most successful when it is consistent, streamlined and according to a strategy. Ad hoc buying and selling may work short-term, or during a bull run, however, over decades I’ve never seen anyone come out on top. Stick to a strategy.

In Summary…

Having a sales discipline is important. Keeping track and looking back over your sales history can help to improve your sell-side decisions. Understanding the decisions and emotions behind each one can prepare you for making better selling choices in the future.

One of the keys to finding multi-baggers is not only in the buy side or research but also in having the conviction to hold and not sell. This means letting it run 3x, 5x, 10x, 50x and still understand there is growth ahead.

You must stick to the strategy. As you evolve as an investor improving the sell-side will help improve your overall investment game. All selling decisions should be logical, aligned with your goals, and well thought through.

If there is no reason to sell or you cannot explain why you are selling, you probably can’t explain why you bought the company in the first place. In the investment thesis a bear case is laid out, mine also includes what would trigger a sale. This helps me to analyse the downsides of companies, and what could go wrong before entering a company. It prepares me for when things go wrong.

Hopefully, this has summarised a brief look at reasons to sell a stock to prepare you for managing your portfolio.