Course 112: Know When to Sell
Reasons Not to Sell
In this course
1 Introduction
2 Four Reasons to Sell
3 Reasons Not to Sell
4 More on the Four

Before we explain the four good reasons to sell a stock, let's cover some of the reasons you shouldn't use to justify cutting a stock loose. First, just because a stock has gone up doesn't mean you should sell it. A whole host of factors go into this decision, such as tax considerations and your personal financial situation. Suffice it to say that in most cases it's better to hold onto a stock that's gone up than to sell it.

Also, you should try valiantly to avoid the mistake most beginning investors make: selling their winners while holding onto their losers. Human psychology comes into play here. We humans hate to admit when we've made a mistake. Therefore, lots of investors hold onto stocks that have gone down with the hope of selling them as soon as they get back to the "break even" point. If they need to raise cash, they sell one of their winners instead.

Unfortunately, in most cases selling your winners is exactly the opposite of what you should do. After all, the U.S. tax code gives you a write-off for realizing a loss, so why not take advantage of Uncle Sam's generosity whenever you can?

The thing to always keep in mind is that it doesn't matter what a stock has done since you bought it; there's nothing you can do to change the past. But you can change your future by selling a dud and taking the tax write-off. Think twice about selling those winners, though, because in most cases the reason they're winners is that they've beaten expectations, and this is often a sign of a company building an economic moat.

Next: More on the Four >>

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