When To Sell Stocks? How high should you let it grow before taking profits?
This is a question that gets asked a lot actually, and there are no easy answers here because I don’t know exactly what you own. But, ordinarily, that is one of the hardest parts of investing, knowing when to “get in” and when to “get out” ie When To Sell Stocks. The timing of the market can be incredibly difficult. This is why speculators are called speculators and not investors. I wish it was as easy as “when it doubles, sell half” or “when it goes up 50%, take your initial investment and ride the interest up the rest of the way”, but that’s terrible advice to follow in the really-real world.
If the stock you own is, fundamentally, a good company, there shouldn’t be a reason to sell, unless the fundamentals start looking bad.
As soon as management abandons capitalistic principles and starts adopting an industrial philosophy of “corporate social responsibility”, you might want to check the exits and grab a seat near the door.
Corporations, and CEOs, exist for one purpose – to make money. Specifically, to make money for their shareholders. If your CEO isn’t focused on that, and the cash flows, P/E ratios, and a host of other fundamentals will tell you that along with facts such as how much stock the CEO owns in his own company, and what he and the upper management say about their responsibility as managers of the corporation. If a CEO is focused more on reinventing themselves by moving away from their core competency (a mistake that Starbucks made and is paying dearly for), or the CEO owns very little or none of his own company’s stock…it should send up red flags.
A good example of bad management would be “yesterday’s” Ken Lay (former CEO of Enron), or today’s Rick Wagoner (CEO of General Motors). When we see something like this its time to Sell Stocks.
As for speculation plays, usually, your best bet is to know a lot about the companies you are investing in. Know the management, know the employees. Physically take a trip to their headquarters to kick over the rocks and try their product (if applicable) to see if you like it. You’ll probably want specialized knowledge about the industry that that particular company is in so that you know the quirks of the business.
But then by following what I just described as the “essentials” for speculating you can also potentially get yourself in serious trouble for insider trading. So, you probably don’t want to take that approach. In fact, you definitely don’t want to take that approach. Sometimes the best methods are illegal, in which case…you throw your hands up and guess…it’s that or risk going to jail.