There are good and bad reasons to sell an investment. It’s not a good idea to sell an asset just because the price has increased or decreased. However, there are situations where it is perfectly acceptable to place one or more orders.
We’ll explore several reasons to sell a stock. When should you sell a stock at a loss or profit? And what circumstances don’t justify stock of sale?
Here are five scenarios where selling an investment is justified:
1. Your investment thesis may have changed
It is possible that the reasons you purchased a stock no longer apply.
Ask yourself why you bought a particular stock and if the reasons remain valid. You should have an investment thesis for each stock you invest in and not just the desire to make money.
Selling can be justified if something fundamental changes about a company or its stock. You can, for example:
- The market share of the company is declining, possibly because a competitor offers a better product at a lower cost.
- The growth of sales has slowed down.
- The management of the company has changed.
- Managers make reckless decisions, such as taking on too much debt.
This list is not exhaustive. It’s important to remember that selling is a good idea if your investment thesis changes significantly.
2. The company is being purchased
A company’s announcement that it will be acquired is another good reason to consider selling.
After the acquisition is announced, the acquired company’s stock value typically increases to a level close to the purchase price. It may be wise to lock in gains as soon as possible after the announcement.
The way in which the company is acquired will determine whether or not selling your stock makes sense. A company can either be purchased in cash or stock.
- Stock prices tend to rise quickly when all cash is paid. If the deal does not go through, the share price of the company could fall. Holding on to shares after an all-cash deal is announced is rarely worthwhile.
- If you are considering a stock deal or a cash-and-stock transaction, the decision on whether to sell or hold should be made based on your desire to become a shareholder of the acquiring firm. In March 2025, mortgage giant Rocket Companies agreed to acquire real estate brokerage Redfin in an all-stock deal. Redfin investors who did not want to become Rocket shareholders would have been able to sell.
3. You will need money soon, or you already do
In general, it’s a good idea to avoid investing in the stock exchange with money that you will need within the next couple of years. If you need cash, selling is a good idea.
You can buy a home and sell stock to pay for the down payment. However, if you have children who will be attending college within a few years, you may want to invest in more secure investments, such as CDs.
4. Rebalance Your Portfolio
Unbalanced investment portfolios can occur in a variety of ways. Most investors need to periodically rebalance their portfolio, which could include selling some stocks. Here are the two most common situations that precede a stock purchase:
- Owning shares with a strong performance: Your position in a company that has seen a significant increase in its price may make up a large part of your portfolio’s value. This is a great problem, but you may be uncomfortable with the idea of having all your money invested in one company. You can sell some of your shares.
- Reducing your stock exposure: When you are getting closer to retirement, it is smart to reduce the stock portion of your portfolio in favour of safer investments, such as bonds. The Rule of 110 is a popular rule of thumb that states you should subtract your age (from 110) to determine what percentage of your portfolio should be invested in stock. Selling some stocks to reallocate resources is a smart decision if your portfolio appears too stock-heavy.
5. Find out where you can invest your money better.
In an ideal world, you would always have cash on hand to invest whenever you identified a good investment opportunity. You may sell your stock in order to invest the money differently.
If you see an amazing opportunity to buy one of your favourite shares and decide to allocate 10% of your investment portfolio to it, you can do so. You may choose to sell shares of stocks or exchange-traded funds (ETF) to raise some cash if you do not have 10% of your investment portfolio in cash.
Even if the stock or ETF is fine, realizing a great long-term investment opportunity elsewhere may be a good reason to sell.
Be aware that the line between overtrading and selling to profit from an opportunity is thin.
When to Sell Stocks for Profit
All of the reasons above are valid reasons to sell an investment at a profit. Profits from investments can be used to justify the sale of a stock in order to cover a large purchase, retirement expenses, or your portfolio allocation strategy.
Don’t just sell the stock because its value has risen. This would be falling for the illusion that you should “take some cash off the table” when a stock increases in value.
It is important to note that selling only simply because the stock price went up is a bad reason.
How to sell stock at a loss
If none of these reasons apply, then it is usually not a good idea to sell an investment just because its value has decreased.
Selling losing investments can save you money on taxes, especially if you find better investment opportunities elsewhere. Investment losses can offset capital gains.
Warren Buffett, the legendary investor, said that “the most important thing you can do when you are in a rut is to stop digging.” If you are no longer interested in the stock or were wrong about it, selling at a profit may be the best choice.
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When to not sell an investment
You should know the situations in which you shouldn’t sell your stock. In some cases, it is not advisable to sell shares.
- Do not sell a winning stock because its price has increased. Winning stocks tend to increase their price for good reason and also continue to win.
- Do not sell a stock because it has decreased in price. All investors want to buy low and then sell high. If the stock’s price has fallen, but the reasons for buying it remain the same, then selling the stock is the opposite.
- It’s not a good idea to sell your stocks to reduce taxes. The tax strategy, tax loss harvesting, can help you lower your capital gains tax by reducing your losses from unprofitable positions. Tax loss harvesting is a good tax-saving strategy, but it only works if you’re selling a lost stock because of other reasons.
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The Motley Fool also sells stocks regularly.
The Motley Fool is always interested in investing in the long term, but that doesn’t necessarily mean we recommend purchasing only stocks.
Our members regularly receive “sell” advice from us, often for the same reasons described above. There are many valid reasons for selling a stock, and many long-term investors have good reasons to unload some of their holdings.
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