There are right and incorrect reasons to sell a stock. While information technology's mostly a bad idea to sell a stock simply considering its price increased or decreased, other situations perfectly justify placing one or more sell orders.

Allow'due south delve into several good reasons for selling a stock, when to sell stock for a profit or loss, and which circumstances exercise non justify selling a stock.

Green button labeled Sell on a keyboard

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Reasons to sell a stock

Hither's a rundown of v scenarios that can justify selling a stock:

1. Your investment thesis has changed.

The reasons why you bought a stock may no longer apply. Examine why you bought a stock in the showtime identify and enquire yourself if those reasons are nevertheless valid. You should have a reason -- or an investment thesis -- for each of your stock investments other than simply wanting to make money.

If something fundamental about the company or its stock changes, that can exist a expert reason to sell. For example:

  • The company's market share is falling, maybe because a competitor is offering a superior product for a lower price.
  • Sales growth has noticeably slowed.
  • The visitor's direction has changed, and the new managers are making reckless decisions such as assuming too much debt.

Of course, this list isn't exhaustive. If something essentially changes that contradicts your investment thesis, that's one of the best reasons to sell.

2. The company is existence caused.

Some other potentially good reason to sell is if a company announces it has agreed to be caused. After an acquisition is appear, the stock toll of the company being acquired typically rises to a level close to the agreed-upon purchase price. Since farther upside potential tin can be quite limited, information technology may exist wise to lock in your gains shortly later on the acquisition announcement.

Specifically, the style the company is existence caused affects whether selling your stock is the right decision. A visitor can exist caused in cash, stock, or a combination of the two:

  • For all-cash acquisitions, the stock toll typically speedily gravitates toward the acquisition price. But if the deal is not completed, then the company's share price could come crashing back down. It's rarely worth belongings on to your shares long afterwards the announcement of an all-cash acquisition.
  • For stock or greenbacks-and-stock deals, your conclusion to agree or sell should be based on whether yous take whatsoever desire to be a shareholder in the acquiring visitor. For example, Slack Technologies (NYSE:Work) recently agreed to be acquired by Salesforce (NYSE:CRM) in a cash-and-stock deal. Slack shareholders who don't desire to become Salesforce investors would be well advised to cash out.

three. You need the money or soon will.

It's by and large a best practice not to invest in the stock market with whatever money you expect to need within the next few years. Merely if yous need the money, that's certainly a valid reason to sell.

Perhaps you want to buy a house and sell some stock to comprehend the down payment. Or yous may have children who program to attend college in a few years, and you desire to convert your stock holdings into more secure investments such as certificates of deposit (CDs).

four. You need to rebalance your portfolio.

Your investment portfolio can get unbalanced in ane or more means. That is why periodically rebalancing your portfolio -- which may involve selling some stock -- is necessary for most investors. These are 2 of the most common circumstances preceding a stock sale:

  • Owning a high-performing stock: If you own shares that have significantly increased in price, your position in the visitor may correspond a large portion of the value of your portfolio. While this is a good problem to have, you lot may non be comfortable with having so much of your coin invested in a single visitor and cull to sell part of your stock.
  • Seeking to reduce your stock exposure: Every bit yous get closer to retirement, it's smart to gradually reduce your portfolio's stock holdings in favor of safer investments such equally bonds. One popular rule of pollex is to subtract your age from 110 to determine the percentage of your portfolio that should be invested in stocks. If your portfolio seems too stock-heavy, and so selling some stock to reallocate your resources can exist a skillful determination.

v. You lot identify opportunities to better invest your money elsewhere.

In a perfect world, you'd always have spare cash to invest for every time y'all place an attractive investment opportunity. Since that's probably non the example, yous may decide to sell stock to invest the cash differently.

Let's say you discover an incredible ownership opportunity for ane of your favorite stocks and make up one's mind you want ten% of your portfolio to be allocated to this investment. If you lot don't happen to have ten% of your portfolio sitting in cash, you may decide to sell some shares of another stock or commutation-traded fund (ETF) you own to gratis up some capital. There's likely zero wrong with the other stock or ETF, but recognizing an first-class long-term opportunity elsewhere tin can be a valid reason to sell.

When to sell stocks for turn a profit

Whatever of the above are good reasons to sell a stock for a profit. Having earned a profit from an investment can further justify selling the stock to pay for a major purchase, your living expenses in retirement, or as office of your portfolio resource allotment strategy.

But don't sell a stock for profit just considering the price increased. Doing that would exist falling into the trap of believing that it'southward a good idea to "take some money off the table" if a stock gains value.

When to sell stocks at a loss

Similarly, it's unremarkably a bad thought to sell a stock only considering its cost decreased. At the aforementioned time, though, sometimes you simply have to cut your losses on a stock position. It's important to non let a drib in a stock's price prevent you lot from selling.

Every bit legendary investor Warren Buffett says, "The most important matter to exercise if you observe yourself in a hole is to terminate earthworks." If your original reason for buying a stock no longer applies, or if you were just plain incorrect almost the company, then selling at a loss rather than continuing to hold may exist your best option.

When non to sell a stock

Information technology's important to clearly know when not to sell a stock. Hither's a list of some of the situations in which information technology's inadvisable to sell your shares:

1. Don't sell a stock just because its price increased. Winning stocks increase in toll for a reason, and they also tend to go along winning.

2. Don't sell a stock just because its price decreased. Every investor wants to buy low and sell high. Selling a stock but because its price fell is literally doing the exact reverse.

three. Don't sell stock just to relieve money on taxes. While a revenue enhancement strategy known equally revenue enhancement loss harvesting tin reduce your taxable uppercase gains past incurring losses on unprofitable stock positions, it's all the same a bad idea to sell stocks just to lower your taxes. Tax loss harvesting tin can be a smart tax-saving strategy, but only if you lot are choosing to sell a losing stock for other valid reasons.

The Motley Fool sells stock regularly, besides

While The Motley Fool e'er approaches investing with a long-term perspective, that doesn't hateful we merely suggest stocks to buy. Nosotros regularly give "sell" recommendations to our members and often for ane of the reasons described to a higher place. There can be several valid reasons to sell a stock, and many long-term-focused investors oftentimes accept reasons to offload parts of their holdings.