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

Sometimes, you do have to sell even your winners. If the fundamentals of a company begin to deteriorate, you may want to consider getting out of the stock--even if it's made you a lot of money in the past. You also might also want to sell a stock if it goes up so much that it's wildly overvalued by any reasonable metric. For example, Yahoo was once selling for around $200, (close to 200 times sales), and it was nearly impossible to make a logical argument that the stock was fairly valued. Investors who held the stock as it went from $2 to $200 in the previous three years would have been smart to take some money off the table.

Still, the number-one reason to sell a stock is if you made a mistake in the first place. Suppose you bought stock in what you thought would be a solid, fast-growing company, but it then turned into a debt-ridden company fighting to save its life. If you would not buy into a company in its current incarnation, why would you hold it? Everyone makes mistakes, but we've found that all great investors are self-critical, quick to realize their mistakes, and not afraid to cut their losses.

An important point here is to not worry about missing a stock's peak. No matter how savvy you are, there's no way you can consistently pick the top (or bottom) of the market. There's a saying on Wall Street: The only person who always buys at the bottom and sells at the top is a liar.

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