Your stock is losing value. You want to sell, but you’re not sure if you should do so now, before more losses occur, or later, when the losses might or might not be greater. All you know is that you want to liquidate your investments, protect your capital, and use the proceeds to purchase an asset that will yield higher returns. In an ideal world, you would always succeed in this goal and sell when it’s appropriate.
Unfortunately, it isnt that easy in real life. Investors panicked when the housing bubble burst in 2007 and stocks began plunging into a bear market. Many waited until the value of their portfolio holdings had dropped as much as 20%50% to 20%600% before they even noticed.
After discussing when to sell stocks, let’s talk about a selling strategy that suits all kinds of investors.
It’s a common dilemma for investors: you’ve bought a stock, it’s started to fall, and now you’re stuck wondering whether to sell and cut your losses or hold on and hope it rebounds.
There are several reasons why you might be hesitant to sell your stocks, even when they’re losing money:
- Loss aversion: Humans are naturally more sensitive to losses than gains. This means that the pain of losing money feels much worse than the pleasure of making money. This can make it difficult to sell stocks that are losing money, even if it’s the rational thing to do.
- Hope: You may still believe that the stock will eventually rebound and you’ll be able to recoup your losses. This hope can be fueled by a variety of factors, such as positive news about the company, a strong track record of past performance, or simply a belief that the market will eventually turn around.
- Fear of missing out: If the stock starts to rise again after you sell it, you may regret your decision. This fear of missing out can make it difficult to pull the trigger on a sale, even if you know it’s the right thing to do.
- Emotional attachment: You may have an emotional attachment to the stock, either because you believe in the company’s mission or because you’ve owned it for a long time. This emotional attachment can make it difficult to sell the stock, even if it’s no longer a good investment.
How to Overcome Your Hesitation
If you’re struggling to sell your stocks, here are a few things you can do:
- Remind yourself of your investment goals: Why did you buy the stock in the first place? What were your goals for the investment? If the stock is no longer helping you achieve your goals, it may be time to sell it.
- Do your research: Take a step back and look at the fundamentals of the company. Is the company still a good investment? Has the market changed in a way that makes the stock less attractive?
- Consider your risk tolerance: How much risk are you comfortable with? If the stock is making you feel anxious, it may be time to sell it, even if it means taking a loss.
- Talk to a financial advisor: A financial advisor can help you assess your investment goals, risk tolerance, and the overall health of your portfolio. They can also help you develop a plan for selling your stocks.
Selling stocks that are losing money can be difficult, but it’s important to remember that it’s sometimes the best thing to do. By understanding the reasons why you might be hesitant to sell and taking steps to overcome your hesitation, you can make more rational investment decisions.
Additional Resources
- Investopedia: How to Sell Stocks
- The Motley Fool: When to Sell a Stock
- NerdWallet: How to Sell Stocks
Disclaimer
I am an AI chatbot and cannot provide financial advice. The information provided above should not be considered investment advice. Always do your own research before investing in any stock.
A Value Investor’s Approach to Selling
Lets demonstrate how a value investor would use this approach. Value investing is, to put it simply, purchasing excellent companies at a lower cost. The strategy requires extensive research into a companys fundamentals.
Addressing the Breakeven Fallacy
Investors, like many during the financial crisis of 2007–2008, tell themselves, “I’ll wait and sell when the stock comes back to the price I originally bought it for,” when their stocks are declining. That way, at least Ill break even. “.
First of all, there is no assurance whatsoever that a stock will ever return. Second, delaying until you reach break even—the point at which gains and losses are equal—can significantly reduce your returns. Naturally, we recognize the allure of being “made whole,” but for long-term gains, it may be more important to reduce your losses.
The following chart illustrates this point by showing how much a portfolio or security must increase following a decline in order to reach the breakeven point.
| Percentage Loss | Percent Rise To Break Even |
| 10% | 11% |
| 15% | 18% |
| 20% | 25% |
| 25% | 33% |
| 30% | 43% |
| 35% | 54% |
| 40% | 67% |
| 45% | 82% |
| 50% | 100% |
A stock that decreases by 250% needs to increase by 10% in order to return to its initial amount. Consider this in terms of dollars: a stock that decreases by 20% from $10 to $5 (or $5 to $10) must increase by $5 or 10% from $5 to $10 (or $5 to 10% from C3% to B7% to $5 to $10) in order to return to the initial 10% purchase price. Due to emotional distress, many investors overlook basic math and incur losses that are larger than they actually realize. They mislead people into thinking that if a stock falls by 2020%, it will only need to rise by that same percentage to break even.
This isnt to say that rebounds never happen. Sometimes a stock has been unfairly pummeled. However, the protracted waiting period—which can extend to years—means that money allocated to one stock is being held in reserve for a different stock that may have greater potential.
Warren Buffett: The 3 Times When You Should Sell a Stock
FAQ
Why am I not able to sell my stock?
What if you can’t sell a stock?
Why can’t I cash out my stocks?
How soon can you sell stock after buying it?
What are bad reasons to buy a stock?
Bad reasons typically involve a knee-jerk reaction to short-term stock market fluctuations or one-off company news. Bailing when things get rocky only locks in your losses, which is the opposite of what you want. (You know the saying: Buy low, sell high.) Before you sell, think about why you bought the stock in the first place.
Is it a bad idea to sell a stock?
While it’s generally a bad idea to sell a stock simply because its price increased or decreased, other situations perfectly justify placing one or more sell orders. Let’s delve into several good reasons for selling a stock, when to sell stock for a profit or loss, and which circumstances do not justify selling a stock.
Should you sell a stock?
There can be several valid reasons to sell a stock, and many long-term-focused investors frequently have reasons to offload parts of their holdings. Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Salesforce. The Motley Fool has a disclosure policy .
When should you not sell a stock?
It’s important to clearly know when not to sell a stock. Here’s a list of some of the situations in which it’s inadvisable to sell your shares: Don’t sell a stock just because its price increased. Winning stocks increase in price for a reason, and they also tend to keep winning. Don’t sell a stock just because its price decreased.