When to Sell a Stock
One of the most common complaints I hear from investors is that their advisors or brokers like to tell them when to buy, but never tell them when to sell. Whether those criticisms are fair or not, the sell decision is certainly the most vexing decision that investors face. Nevertheless, there are several clichés that people often turn to help with this puzzling decision.

Legendary investor Peter Lynch in his best-selling book “One Up On Wall Street” said it like this: “Just because you buy a stock and it goes up does not mean you are right. Just because you buy a stock, and it goes down does not mean you are wrong.” The point is that a rising stock may be dangerously overvalued, while the falling stock price may indicate that the company is becoming a rare opportunity on sale. Understanding this comes down to realizing, without questioning, that the market is not always right nor is it always efficient. On the other hand, it would be more correct and accurate to say that the market, although not always efficient, is always seeking efficiency.

Over the years I have learned that the price of the stock will inevitably align itself with the intrinsic value of the business. Unfortunately, the timing of that occurrence is unpredictable. Sometimes, the movement back to intrinsic value (up or down) can be very swift, at other times the valuation anomaly can continue for a tortuously long time. Therefore, you simply cannot predict how high is up or how low is down. On the other hand, you can recognize too high and too low when you see it. Once that is accomplished, you can make a rational long-term decision.

Furthermore, the prudent intelligent value investor also understands that all investments, especially investments in common stocks, derive their value from the amount of cash they provide their stakeholder.

So How Do You Know When To Sell A Tech Stock?
As I established above, the honest and the correct answer is you simply cannot answer this question with perfect precision. Instead, all you can practically expect to do is make a prudent or a rational decision. Investing is not a game of perfect. Sometimes you can sell a little early, sometimes you can sell very early. In other times you can wait too long to sell and lose big as a result. Nevertheless, they do not ring a bell at the top or bottom of the market. Therefore, for sanity’s sake you must accept that you can only make rational and intelligent sell decisions. In many ways, the same can be said about the buy decision. However, in truth and fact, the buy decision is a little more straightforward.

Apply Prudent and Sensible Strategies Instead
Instead of distressing over trying to make a perfect sell decision, try applying rational strategies instead. For example, you can place an overvalued stock on a “sell watch list” like I often do. This does not mean I immediately sell, instead, it means that I am cognizant of my risk and prepared to sell quickly if the situation warrants. However, the point is, since I know I am in dangerous territory, I watch my overvalued stocks more closely than the ones I hold at sound valuation. In other words, I am willing to ride out some volatility when I have attractive value. On the other hand, when I have “false profits” I try not to let the windfall simply dissipate into thin air. To add another cliché, “a bird in the hand is worth two in the bush.”
Additionally, once I place a stock on my “sell watch list” I simultaneously begin looking for suitable replacements at more attractive valuations. This can help combat seller’s remorse when I believe I can keep my money working with less risk and hopefully better long-term return potential.

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