There are right and incorrect reasons to sell a stock. While it's generally a bad idea to sell a stock merely because its cost increased or decreased, other situations perfectly justify placing ane or more sell orders.

Allow'south delve into several expert reasons for selling a stock, when to sell stock for a profit or loss, and which circumstances exercise not justify selling a stock.

Green button labeled Sell on a keyboard

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Reasons to sell a stock

Hither's a rundown of v scenarios that can justify selling a stock:

1. Your investment thesis has changed.

The reasons why you bought a stock may no longer apply. Examine why yous bought a stock in the first identify and enquire yourself if those reasons are still valid. You should have a reason -- or an investment thesis -- for each of your stock investments other than just wanting to brand coin.

If something cardinal about the visitor or its stock changes, that can exist a expert reason to sell. For instance:

  • The company's market share is falling, possibly because a competitor is offering a superior product for a lower price.
  • Sales growth has noticeably slowed.
  • The company'due south management has inverse, and the new managers are making reckless decisions such as assuming too much debt.

Of form, this listing isn't exhaustive. If something essentially changes that contradicts your investment thesis, that'south one of the best reasons to sell.

2. The visitor is beingness acquired.

Another potentially good reason to sell is if a company announces it has agreed to be acquired. Afterward an conquering is announced, the stock price of the company being acquired typically rises to a level close to the agreed-upon buy price. Since further upside potential can be quite express, it may exist wise to lock in your gains before long subsequently the acquisition annunciation.

Specifically, the way the company is existence caused affects whether selling your stock is the right determination. A visitor can be acquired in cash, stock, or a combination of the 2:

  • For all-cash acquisitions, the stock cost typically chop-chop gravitates toward the conquering price. But if the bargain is not completed, then the visitor's share price could come crashing back downwards. It'southward rarely worth belongings on to your shares long afterwards the proclamation of an all-greenbacks acquisition.
  • For stock or cash-and-stock deals, your conclusion to hold or sell should be based on whether yous have any desire to be a shareholder in the acquiring company. For example, Slack Technologies (NYSE:WORK) recently agreed to be acquired past Salesforce (NYSE:CRM) in a cash-and-stock deal. Slack shareholders who don't want to become Salesforce investors would be well advised to greenbacks out.

3. You demand the coin or soon will.

It's generally a best practice not to invest in the stock market with any money you await to demand within the next few years. But if you demand the money, that'south certainly a valid reason to sell.

Peradventure you want to purchase a business firm and sell some stock to cover the downwardly payment. Or you lot may have children who programme to nourish college in a few years, and you lot desire to convert your stock holdings into more secure investments such equally certificates of eolith (CDs).

iv. You demand to rebalance your portfolio.

Your investment portfolio tin become unbalanced in one or more ways. That is why periodically rebalancing your portfolio -- which may involve selling some stock -- is necessary for most investors. These are two of the most common circumstances preceding a stock sale:

  • Owning a high-performing stock: If you lot own shares that have significantly increased in price, your position in the company may correspond a big portion of the value of your portfolio. While this is a good trouble to accept, you may not exist comfy with having so much of your coin invested in a single company and cull to sell part of your stock.
  • Seeking to reduce your stock exposure: Equally y'all get closer to retirement, it's smart to gradually reduce your portfolio's stock holdings in favor of safer investments such as bonds. Ane pop rule of thumb is to decrease your age from 110 to determine the percentage of your portfolio that should be invested in stocks. If your portfolio seems as well stock-heavy, so selling some stock to reallocate your resources tin be a practiced conclusion.

5. You identify opportunities to ameliorate invest your money elsewhere.

In a perfect globe, you'd always take spare cash to invest for every time you identify an attractive investment opportunity. Since that'due south probably not the case, you may decide to sell stock to invest the cash differently.

Permit'due south say yous notice an incredible ownership opportunity for ane of your favorite stocks and decide you want ten% of your portfolio to be allocated to this investment. If yous don't happen to take ten% of your portfolio sitting in cash, you may decide to sell some shares of another stock or exchange-traded fund (ETF) yous own to gratuitous up some majuscule. There's likely nothing wrong with the other stock or ETF, only recognizing an excellent long-term opportunity elsewhere can be a valid reason to sell.

When to sell stocks for profit

Any of the above are good reasons to sell a stock for a profit. Having earned a turn a profit from an investment can further justify selling the stock to pay for a major purchase, your living expenses in retirement, or as part of your portfolio allocation strategy.

Simply don't sell a stock for profit but considering the toll increased. Doing that would be falling into the trap of believing that it'south a practiced idea to "take some money off the table" if a stock gains value.

When to sell stocks at a loss

Similarly, it's commonly a bad idea to sell a stock simply because its toll decreased. At the same time, though, sometimes y'all just have to cut your losses on a stock position. It'south of import to not let a drop in a stock'southward cost forestall you from selling.

Every bit legendary investor Warren Buffett says, "The well-nigh of import thing to do if you notice yourself in a hole is to cease digging." If your original reason for ownership a stock no longer applies, or if you were merely obviously incorrect about the company, and so selling at a loss rather than continuing to hold may exist your best option.

When non to sell a stock

It's of import to clearly know when non to sell a stock. Here's a list of some of the situations in which it's inadvisable to sell your shares:

i. Don't sell a stock just because its cost increased. Winning stocks increase in cost for a reason, and they also tend to continue winning.

2. Don't sell a stock but because its price decreased. Every investor wants to purchase depression and sell loftier. Selling a stock just considering its cost cruel is literally doing the exact opposite.

iii. Don't sell stock simply to save coin on taxes. While a tax strategy known every bit revenue enhancement loss harvesting can reduce your taxable uppercase gains by incurring losses on unprofitable stock positions, it'south even so a bad idea to sell stocks just to lower your taxes. Tax loss harvesting can be a smart tax-saving strategy, merely only if you are choosing to sell a losing stock for other valid reasons.

The Motley Fool sells stock regularly, too

While The Motley Fool ever approaches investing with a long-term perspective, that doesn't hateful we but advise stocks to buy. We regularly give "sell" recommendations to our members and often for i of the reasons described above. There can be several valid reasons to sell a stock, and many long-term-focused investors oftentimes have reasons to offload parts of their holdings.