Know When to Bail On Your Stock Picks

Use our tips to improve your chances of selling stocks successfully.

Ask professional stock pickers to describe their discipline for selling, and they'll typically give one or more of these reasons: We sell when other investors come around to our way of thinking and the stock reaches the price we expected. Or, we sell when new, negative information invalidates our thesis. Finally, we sell if we can find stocks with greater potential.

Straightforward as that sounds, selling can be extremely difficult, in part because it's a psychological minefield. We sell some winning stocks too soon for fear that our well-earned gains will evaporate. We hold on to other winners too long because we've fallen in love with the companies that have made money for us. Maybe worst of all, we often hold on to losing stocks for no better reason than an unwillingness to admit we were wrong. As investing legend Philip Fisher wrote decades ago in Common Stocks and Uncommon Profits: "More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason."

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John Heins
Contributing Editor, Kiplinger's Personal Finance