Last Updated: August 31, 2021
Knowing when to sell stocks can be tricky. It requires paying attention to a few factors that may not be obvious to people with little to no experience in investing. But, don’t worry, we’re about to break down the most efficient ways to earn a profit through selling equities.
When to Sell Stocks?
Selling your invested shares is pretty simple if you have the information for what to and what not to do. So, the right time depends on many factors such as target price, merging, and fundamentals. Here are a few instances of when to sell a stock:
Having a targeted price in mind
Going into investing without doing proper research isn’t a good idea. For this reason, astute investors do plenty of research about the company to get to know it better and hit a so-called price target. This means that you buy stocks intending to sell them when they reach a designated sum or range that you think is right. This way, a stockholder will know the right time to sell stocks and won’t let the desire to make a quick profit overwhelm their decision-making.
You need or will need cash soon
If you have urgent expenses that you need to cover, it’s a good idea to sell your stocks. This could include medical expenses, home repairs, or other emergencies.
Fundamentals start to weaken
Another great time to sell shares is when the overall performance of the company starts to decline. This includes fundamentals like dividend yield, liquidity, profit margin, or generally, the working capital. Carrying out a full fundamentals analysis can further increase your knowledge about the company’s performance and help with deciding if and when to sell stocks. If the numbers are deteriorating or about to, there’s no good reason to hold on to the stock shares.
Better opportunity arises
To avoid opportunity cost, one needs to do thorough market research by comparing companies and their potential profits from owning shares in each of them. So, if you have shares to sell and stand to earn more money doing so, you should always seize the opportunity offered before it passes up. Check out our list of best-performing stocks in the last ten years and determine the most suitable stock for you.
After merging with another company
If the company you have stocks in is being acquired by another company, it may be a sign to sell stocks now. This also comes down to your interest in investing in the latter company. Additionally, after an acquisition happens, the stock prices usually rise to a sum that both parties previously agreed to, and it’s the perfect time to make a sale.
When You Shouldn’t Sell Stocks
Knowing when to hold on to stock can be tougher than knowing when is a good time to sell it. There are plenty of reasons as to why you should hold on to your stocks. If your initial set goals for your stocks are still attainable, then why let them go? Here are some cases when you shouldn’t sell shares:
Prices going up or down
Have you ever asked yourself, “should I sell my stocks” when the price went up or down? Well, it’s a lot more complex than just selling your stocks after a price change. By taking bigger risks, you may earn more than you originally planned. Sometimes the price goes down only to surge back up.
To lower taxes
It might sound appealing to sell your equities to lower your taxes, but that isn’t always a good decision. The strategy known as tax-loss harvesting is a popular way to lower taxable capital gains on other investments by selling your stock positions. That can be a valid reason to sell stocks, but it’s not a good idea to do it solely to lower taxes.
Liquidating inherited stocks
Another bad timing to liquidate would be when you’ve recently inherited equity. In most cases, investors aren’t fond of inherited stocks since they didn’t buy them themselves. Although it is understandable, it’s better to do a valuation before jumping straight to selling them.
So, when do you sell a stock of this kind? Since you have nothing to lose, it’s best to hold on to it, keep track of its fluctuation and treat it like the rest.
The bottom line
It can be tricky knowing when to hold on to stocks, but being cautious and patient can sometimes pay off. A good idea is to always be calm and don’t let panic determine your course of action.
How to Sell Stock
A key process if you’re investing or just trading, knowing how to sell a stock effectively always results in a better outcome, and ultimately, bigger profit. The process is rather straightforward and only includes a few steps.
Picking a broker
Owning a stock comes with a specific physical document known as a stock certificate. So, if your next move is to sell them, you should start looking for a suitable broker that offers low fees and is easy to use. There are plenty of brokers out there, but we’ve compiled a list of the best online brokers for beginners that should help you out.
Trying out the broker’s platform
The next step to selling stock would be trying out the platform of the selected broker, and you can do this with a demo account. What you’re looking for is an easy-to-use platform, educational guides, and helpful staff. While most offer demo accounts, there are those who don’t. Additionally, you can open demo accounts across different platforms to find the perfect match for your needs.
Funding your account
Having a stockbroker opens up your way to opening a trading account which means you can start funding it and eventually earn stock profit. You can deposit two types of investments, a margin or a stock that you own. Though it’s not always the case, another initial deposit may be required; it really depends on the company. It’s a nuisance, but it will be worth it in the end.
Choosing a sell order
After all this, you have to decide what order type you want to place. There are a few stock sell order types, but let’s go through the main ones:
Market order: These are orders that let you sell your stock as quickly as possible, but the buying price will be very close to the bid price. This means that you won’t always get the profit you wanted.
Limit order: With a limit order, you set the desired price that you wish to sell your equity for. This way, it triggers an execution when there’s an offer equal to or higher than the set price of the selling stock.
Sell stop order: This type of order lets you place a price that’s below the current market price and executes a sell when it reaches it. By choosing this order, you ensure that you get at least something and not end up without anything.
What Are the Different Stock Classes?
When talking about stock classes, we can divide them into Class ‘A’ shares and Class ‘B’ shares, and the only difference between them is the voting rights they come with. Of course, not all companies choose to do so. If a company was private until a certain point, and then they go for an initial public offering, where they may start selling shares of this type. The main reason for this is to maintain the current company balance.
Class A shares
These are a type of common stock and give investors partial ownership of the company, the ability to earn a profit, and the ability to vote. You usually get one or more votes per stock, and you can use them to share your thoughts at the company’s annual meetings, where the board of directors is elected.
Class B shares
If the company decides to split its stock, these are the less valuable stocks. They give fewer voting rights to their holders. Hence, they have a lower sale stock price. However, the company decides on the exact numbers, and Class B can have more voting rights or other privileges than Class A shares. For example, the company’s existing Class A stocks may be transferred onto new shareholders, and existing shareholders get Class B stocks. The company can choose to give more voting power to Class B stockholders, so the existing shareholders retain their voting rights.
Another form of stocks, preferred shares, are a kind of combination of equities and bonds. Owning them will get you a dividend earlier than common share stockholders.
Stock Market Sectors
It’s good to know about stock market sectors if you wish to buy or sell stocks. It’s a categorization of companies by the type of business they engage in. They’re categorized into sectors to make it easier for investors to do a stock valuation. According to the Global Industry Classification Standard (GICS), there are 11 stock market sectors:
- Energy — The energy sector deals with companies related to the natural gas and oil industry and other producers of consumable fuels like coal and renewable energy.
- Materials — The materials sector covers industries that focus on raw materials, specifically mining and refining, chemical products, and forestry. This sector provides great opportunities for anyone interested in dabbling and buying or selling a share or several.
- Industrials — Companies that produce products used in construction, transportation, and manufacturing such as equipment and machinery are all part of the industrials sector.
- Utilities — Anything connected to public services can be considered a part of this sector, namely water, electricity, dams, and more.
- Healthcare — The healthcare sector comprises industries working with healthcare services, the production of medical equipment, and the development of drugs.
- Consumer Discretionary — This sector refers to products that aren’t essential or affordable to the average consumer, like designer brand apparel, leisure activities, etc. Also a very popular sector for selling shares of stock.
- Consumer Staples — In contrast, the consumer staples sector covers products that are needed for everyday life no matter their customers’ current financial condition.
- Financials — Businesses that provide financial services, such as banks, investment companies, and insurance as well, are all part of the financials sector.
- Telecommunication Services — A popular niche, telecommunication services include wireless networks, the internet, landline services, and more. It is also home to Netflix — the best performing stock on the public market right now.
- Information Technology — The information technology sector covers companies that work on software development, tech equipment, hardware, and other electronics. Profitable selling times await for stocks in this sector.
- Real Estate — The real estate sector consists of two investment types. Some stocks are related to developing new projects and managing them and real estate investment trusts.
To wrap things up, knowing when to sell your stocks isn’t easy, but if you’re careful and research smart investing strategies before diving in, you can earn plenty of money. Too many investors don’t realize the importance of holding on to a stock and end up panic-selling stocks, and they regret it later. Therefore, understanding the dos and don’ts of when to sell a stock requires a lot of patience and evaluation. Knowing how to pick the right broker and fund your account is also a must. Many factors influence the result of your final action, so use market sectors and class shares to your advantage.
It’s usually advisable to hold on to your stock as long as possible, but you should always be aware of price fluctuations. Moreover, doing a valuation from time to time will help you decide whether to keep holding or sell stocks you own.
Yes, you can, but you can only do it up to four times on the same day in a period of five business days. You can avoid this by buying near the end of the day and selling the day after.
Cashing out is pretty simple. All you have to do is call your broker or make an online order to sell the desired stock or any other investment.
For long-term investing, holding is always the better choice, but if you see that the fundamentals are starting to weaken, you may want to sell. It all depends on what your goal is.
Realizing when to sell stocks is crucial to any investor. A great opportunity to sell your stocks would be when you hit the price target, or if you just need the money for any other reason, whether it’s for a better investment opportunity or a personal expense.