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There are three reasons that I sell stocks. The first two are happy. The third one’s sad.
First, happily selling stock to buy a house, or put a child through school, or retire to financial freedom: That’s why we invest. ’Nuff said.
Second, sometimes I sell stock because I have something I like even more. We all have limited funds — we all have finite (but, one hopes, growing) resources. If there’s a stock outside your portfolio that you think would be great inside your portfolio (superior to something else presently in your portfolio!) that’s a great reason happily to sell.
That’s precisely what I wrote for the chapter on selling in our original book, The Motley Fool Investment Guide: Sell when you have a better place to put your money. I was in my twenties back then, and feel just the same in my fifties. You are operating here with a portfolio-level mentality. You’re thinking in terms of optimizing your portfolio, not getting caught up in the weeds of individual positions or target prices. Good on you.
“Are you invested today optimally going forward?”
That question helps some people decide to sell some loser stock they were hoping would get back to even. Instead, they redeploy the money into a much more promising company they’ve been jonesing for. The second happy reason to sell.
The sad, third reason I sell stock is very simply when the company has failed to live up to my past expectations and the expectations I have of that company going forward.
For example, in our Motley Fool Rule Breakers service we recommended ExOne, a small-cap company trying to do something really difficult (that’s not a good combo, by the way!): 3D printing in metallics. As the quarters wheeled past and the results and stock kept declining, we saw the error of our ways. Sadly, we sold.
It’s not easy, right? But the proof is usually in the pudding. If you decide, “Looking forward, I don’t think this is going to work out,” that’s a great (sad) reason to sell.
Three simple considerations becoming actions.