First, I would like to apologize for the long amount of time since the last time I posted. I have been busy with final exams and the end of the year. I am now on summer vacation so I will be able to write more often.
When reading the financial media, we hear a lot about buying stocks, much less do we hear about selling. Many investors in fact believe that selling is a much harder decision than buying. Here’s a few tips (with examples) I have for selling a stock:
-You don’t have to sell it all
A lot of people seem to think that if they are going to sell a stock, they must dump 100% of their shares. This is completely false, I usually start by selling 50%, or my cost basis (the amount of money I originally put into the stock) to have my money work for me.
One example of a stock I sold recently was TSLA (I wrote a post about it recently). It quickly went from $35 to $115. I sold 50% of my shares at $46. Another 50% of that at 97, and I now hold 25% of my original stake in the company. I took out my cost basis (and a lot of profit to buy my car) and i’m letting the profit work for me.
-Set a target price and stick to it
Setting a target price can help you solve the fear/greed emotions. While you may have thought I made a big mistake selling half my TSLA stock at $46, it still was a great decision. I bought the stock at $20 so over a 100% gain is great. I unloaded my cost basis and decided I would wait to unload another 50% when the share price got to about $96 (I figured this would take a year or so, but it happened in a matter of days). I unloaded another 50% (25% of the original.) My new target price is $200.
-Ask yourself, why should I own this?
Simple enough, if you can’t come up with a good answer (I think they have a cool logo doesn’t count) or some good numbers you should sell.
–Ask yourself, have I made enough money?
I know this one sounds funny, but if you make a ton of money (over 20%) in a small period of time, you should really be reevaluating the stock. Chances are, if a stock goes up that much, it probably (but still depending on the circumstances) will go down. If this sort of thing happens, sell your cost basis, so you’ll only be risking your profit.