Do You Know When It’s Time to Sell a Stock?
Mar 02, 2025Hello Stoic Investors,
Today, I want to answer a question that every beginner investor faces:
When is it time to sell a stock?
Knowing when to sell is just as important as knowing when to buy.
Buying a stock can feel exciting, but selling takes patience and clear thinking.
Some investors hold onto stocks too long because they hope prices will bounce back. Others sell too early and miss out on future gains.
The key is to have a plan for selling, just like you do when buying.
To know if it's time to sell, you just need to ask yourself three simple questions:
1. Is Your Reason to Buy Still Valid?
Think back to why you bought the stock.
Did you invest because the company had strong growth potential, a competitive advantage, or solid financials?
If the company has changed its strategy, struggled financially, or lost its market position, it might be time to sell.
A practical way to assess this is by reviewing recent earnings reports, news, and industry trends.
If revenue and profit margins are declining or if leadership has shifted direction in a way that concerns you, it’s worth reconsidering your position.
Additionally, compare the company's performance to its competitors—if they’re thriving while your stock is struggling, it might be time to move on.
2. Has the Stock Price Increased?
If the stock price rises too much, it might not be a good deal anymore.
When a stock gets too expensive compared to its actual value, future gains might be smaller, and there’s a higher risk of a price drop.
Holding onto an overpriced stock can also stop you from investing in better opportunities.
Here are three key numbers to check:
- P/E Ratio (Price-to-Earnings): Shows how much people are paying for each dollar of profit. A ratio above 25-30 usually means the stock is expensive compared to its earnings.
- P/S Ratio (Price-to-Sales): Compares stock price to company revenue. Over 3 is usually too high, while under 1 might mean a good deal.
- PEG Ratio: Adjusts the P/E based on growth. A high PEG (above 2) suggests the stock is expensive relative to its growth, while a PEG under 1 means it could be undervalued and have room to grow.
Another simple tip: Decide in advance at what price you’d sell.
One way is to estimate how much the company’s earnings will grow and apply a fair P/E ratio.
For example, if you think earnings will hit $5 per share and a fair P/E is 20, your target price would be $100.
If the stock hits that price, ask yourself:
Does it still have room to grow, or is it time to sell and invest in something better?
3. Are You Missing Other Opportunities?
If the stock price goes down since you bought it, don’t keep it just because you hope it will bounce back.
Unfortunately, the market doesn’t care about the price you paid.
Instead, check if other stocks have better potential.
A simple way to do this: Compare your stock’s future growth potential with another stock.
If another investment has stronger growth prospects, it might be smarter to switch.
Holding onto a losing stock for too long can stop you from making better investments.
If your stock is lagging, consider whether you’re holding on just to avoid a loss.
Sometimes, reallocating your money to a better-performing investment can be the smarter move.
Don’t let the past dictate your future—invest where your money has the best chance to grow.
That being said, making bad investments is part of the game.
Even the best investors don’t get it right every time.
If you’re right 6 out of 10 times, that’s already enough to make a lot of money!
So, note down these 3 questions to decide if it's time to sell your stock and start investing today:
1. Is Your Reason to Buy Still Valid? If the company has changed direction or is struggling, it might be time to sell.
2. Has the Stock Price Increased? If the stock is overpriced, consider selling and reinvesting elsewhere.
3. Are You Missing Other Opportunities? Holding onto a losing stock too long can keep you from better investments.
