2-Minute Money Manager: How Do I Know When It’s Time to Sell My Stocks?

Photo by Rawpixel.com / Shutterstock.com

Welcome to your “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is about investing in stocks; specifically, how you know when enough is enough and it’s time to sell.

I worked as an investment adviser for 10 years and have been investing in stocks for about 40. As every stock investor knows, the question of when to get in or get out is an agonizing one. But with a simple rule of thumb, it’s not that difficult.

Watch the video to learn about this handy rule. Or, if you prefer, scroll down this page to read the full transcript of the video and find out what I said.

You can learn how to send in a question of your own below.

For more information on this topic, check out “10 Tips for Sane, Successful Stock Investing” and “8 Basics That Beginning Investors Must Know.” You can also go to the search at the top of this page, put in the word “investing” and find plenty of information on just about everything relating to this topic.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, everyone, and welcome to your “2-Minute Money Manager.” I’m Stacy Johnson, and this answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.

Our question today comes from Theresa:

“I’d like to know what I should do now that my initial investment in stocks has doubled. Do I cash out the amount that I’ve earned and leave the initial investment until it doubles again? What’s the correct rule of thumb? I’m afraid that if I don’t withdraw the earned amount, I might lose it when the market takes a downturn.”

Well, Theresa, congratulations on doubling your investment! Now, you’re facing the conundrum all investors face: when to sell. Get out too soon, and you’ll miss potential profits. Sell too late, and you may not only lose your profit, but your original investment.

I’ve been investing in stocks for 40 years or so, and I can tell you that you’ll rarely be certain about when to ring the register. But if you ask me if it’s time to sell, my reply will be, “I don’t know: Why’d you buy in the first place?”

And here lies the lesson: The time to sell a stock is when the reasons you bought it are no longer valid.

For example, a couple of years ago, I bought Facebook. Why’d I buy it? Because I saw that everybody around me was using Facebook, the company’s income was rising meteorically, and the price of the stock seemed reasonable compared to the earnings it was generating.

I was either lucky or right: After I bought it, it doubled.

Not so long ago, Facebook had a major issue. The profiles of millions of Americans were misappropriated and used for nefarious purposes. The results were a steep decline in the stock, a tidal wave of negative publicity, the CEO being called before Congress and demands for potentially profit-destroying regulation.

At the time, it raised a question: Should I take my money and run? I thought about it long and hard.

To decide what to do, I revisited my original investment theme. As I said, I bought Facebook because everyone seemed to be using it and based on its earnings and potential, it was priced fairly. Even in the midst of Facebook’s difficulties, those things were still true. Therefore, I decided to keep my shares.

What about the overall market? If the stock market takes a huge hit — even bigger than the relatively modest declines we’ve seen recently — all my stocks will go down, including Facebook. But I’m a long-term investor and have learned over the years that I’m not smart enough to time the market. This is also why I don’t have enough money in stocks to keep me up at night.

Bottom line, Theresa: When you face a decision to sell, revisit the reasons you bought. If you’re genuinely afraid of losing your profit, take it. Or, sell part of your position to recoup your original investment. But I’d urge you never to try timing the market. You won’t be successful. Nobody is.

One last piece of advice: Resist the temptation to take little profits and to let your losses run.

What a lot of investors do is get a small gain on a stock, then sell it. After all, as the old expression goes, “You can’t go broke taking a profit.” But when they own a stock that goes down, they hold on to it, saying something like, “Well, when it comes back I’ll sell it then.” The problem? It never does. The result? A portfolio of losers.

The way to make money in the stock market is to do the opposite of what most investors do. In other words, let your profits run and cut your losses short. Sell when you own something that isn’t working out, and the theme you thought was there doesn’t hold water. Keep the winners for as long as your theme is intact. That’s what’s going to make you rich.

Have a profitable day, and meet me right here next time! And if you liked what you heard, do me a solid and share this.

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would any email in your inbox. If you’re not subscribed, fix that right now by clicking here. It’s free, only takes a few seconds, and will get you valuable information every day!

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Got any words of wisdom you can offer on today’s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

Got more money questions? Browse lots more Ask Stacy answers here.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
5 States Where Drivers Pay the Most for Car Insurance
5 States Where Drivers Pay the Most for Car Insurance

Auto insurance will cost you more than three times as much in one state compared with another. Here’s how to lower your rates no matter where you live.

5 Home Improvements That Help You ‘Age in Place’
5 Home Improvements That Help You ‘Age in Place’

These safety-conscious home upgrades can help retirees stay in their home.

Small Splurges That Make It Feel Like You’re Living Large
Small Splurges That Make It Feel Like You’re Living Large

Cutting costs is the shortest path to financial freedom. However, there are times when a little spending can produce big returns.

14 Uses for WD-40 That Save Money, Time or Headaches
14 Uses for WD-40 That Save Money, Time or Headaches

WD-40 is handy in a lot more situations than you likely realize.

This Online Bank Rated Best for Second Year in a Row
This Online Bank Rated Best for Second Year in a Row

This bank pays interest without charging monthly fees, but there’s a downside.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Mistakes Everyone Makes When Shopping on Amazon
9 Mistakes Everyone Makes When Shopping on Amazon

Are you losing money due to any of these missteps?

7 Changes Coming to Social Security and Medicare in 2021
7 Changes Coming to Social Security and Medicare in 2021

Recently, both Social Security and Medicare made some major announcements about benefits for 2021.

Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?
Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?

The rules are complicated when it comes to eligibility for survivors benefits.

Can a Twice-Divorced Woman Claim Social Security Survivors Benefits?
Can a Twice-Divorced Woman Claim Social Security Survivors Benefits?

Understanding survivors benefits rules is the key to getting the most from your benefit.

These Are the 10 Worst Cars for Depreciation
These Are the 10 Worst Cars for Depreciation

Two types of vehicles are especially likely to see steep plunges in value.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

10 Things I Always Buy at Trader Joe’s
10 Things I Always Buy at Trader Joe’s

From snacks to sweets to side dishes, stock your cart with these time-tested favorites on your next TJ’s run.

Longer Trips to This Type of Store May Raise Coronavirus Risk
Longer Trips to This Type of Store May Raise Coronavirus Risk

An airborne-disease expert recommends exiting these stores within 30 minutes.

5 Ways Social Security Will Change in 2021
5 Ways Social Security Will Change in 2021

These adjustments will affect both workers and retirees in the new year.

11 ‘Disposable’ Items You Should Be Reusing
8 Things You Should Buy at Restaurant Supply Stores
8 Things You Should Buy at Restaurant Supply Stores

You don’t have to be a chef or a restaurant owner to shop here.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

There are easy high-paying majors available in the U.S. — and no bachelor’s degree is required. We’re here to help you find easy degrees that pay well.

Stop Buying These 19 Things Online
Stop Buying These 19 Things Online

The internet has changed how we shop. But for some things, you’re still better off buying the old-fashioned way.

Cut These 11 Expenses Now If You Hope to Retire Early
Cut These 11 Expenses Now If You Hope to Retire Early

Like the idea of financial independence? Part of the FIRE equation is cutting costs.

27 Things You Should Never Pay For — and How to Get Them for Free
27 Things You Should Never Pay For — and How to Get Them for Free

When you know the tricks, you can save big on all kinds of useful things that others pay for.

4 Tax Credits That Will Be More Generous in 2021
4 Tax Credits That Will Be More Generous in 2021

If you are eligible for these tax breaks, they will slash your federal income tax bill — dollar for dollar.

7 Tips for Building an Emergency Food Supply
7 Tips for Building an Emergency Food Supply

A pandemic or natural disaster could leave you reliant on your existing emergency food supply. Is your pantry well-prepared for emergencies? Knowing what to stock up on for emergencies can be a difficult task and we’re here to help.

15 Things You Can Get for Free in December
15 Things You Can Get for Free in December

December is here, which means it’s your last chance to take advantage of fabulous freebies in 2020.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.