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How to Know When to Sell

The main consideration in deciding when to sell is why you bought the stock. What were your expectations? Do they still apply? If the company continues to follow a winning path, why sell? Hold the stock as long as it continues to perform (and maybe consider accumulating more shares).

You will want to keep an eye on the price earnings ratio. If the share price rises faster than earnings, PE will increase. That can imply the stock is over bought and may be over priced. Then you might want to take profits. Or sell part of your position to cover your costs and hold onto the rest.

If a stock takes a major tumble, you will want to know why. Was it just a major block of stock coming to market? Or was it some bad news implying a change in future profits? Then you should reevaluate. Is it still a good investment worth waiting for?

If the stock crosses the 50 or 200 day moving average to the downside, many take that as a sell signal. Again you should reevaluate.

If a stock fails to perform as expected, how long do you keep it? If down 10 to 15% from what you paid for it, most pros say you should admit you were wrong on this one and sell. Again reevaluate, and make an exception only if you have a good reason.

And what about the stock that just sits there and doesn't move? Why keep it? You might wait for the next earnings report. Or as a long term investor, you can decide to be patient and wait a while. But usually if it's not up after 3 mo, it's best to look for something better.

Many tell you it's a good idea to have a price target in mind when you buy. With some speculative stocks you will want to take profits right away if they do well. Others may be doing well enough to hold onto longer than you planned.

Finally, you will want to consider tax implications. Profits on stocks owned less than one year are taxed as ordinary income. Lower capital gains rates apply only after one year. Can you hold this stock long enough to qualify for long term capital gains rates?

Capital losses can also be considered. Losses can be deducted from capital gains in the current tax year, and up to $3K in additional losses can be deducted from ordinary income. Net losses over $3K can be carried forward to future tax years and deducted each year until all of the loss has been deducted. If you have paper losses, do you want to a take them in the current tax year?

There are no hard and fixed rules. Every stock has a personality. Learn to adapt to each situation.