When should you consider selling a stock?

A falling share price alone isn't a reason to sell

The share price tells you what the market is willing to pay now, not whether the company has changed. If the business is still developing in line with your investment thesis, a fall may simply mean that the same company is cheaper.

In the same way, a rise isn't a reason to hold. A decision to sell should be based on whether the original rationale for owning the stock still holds.

Six well-founded reasons to consider selling

1. Your investment thesis has changed. The business isn't developing in line with the assumption you invested on: the competitive advantage is weakening, growth is stalling or management is changing direction.

2. The valuation and expectations have changed significantly. The share price has risen so much that the price assumes more than you consider realistic.

3. You find a better-founded alternative. The same money would serve your overall portfolio better in another investment.

4. Concentration risk has grown. The stock has grown into such a large part of your portfolio that the fate of one company decides too much.

5. You need the capital for a goal. The time horizon has been reached and the money is needed for what it was intended for.

6. Taxation or rebalancing. A sale can be part of rebalancing your portfolio or of tax planning: Losses and tax planning →

Write down your reason to sell in advance

The best moment to decide on your reasons to sell is when you buy. Write one sentence next to your investment thesis: “I'll sell if…”. For example: “I'll sell if the company loses market share two years in a row” or “I'll sell part of it if the stock exceeds 10% of my portfolio.”

A condition written in advance separates a considered decision from an emotional one. When the share price moves, you just check whether the condition has been met.

Two common errors in thinking

Fear of a loss makes you hold on to losers. Many people wait for a losing stock to return to its purchase price, even though the purchase price has no effect at all on the company's future.

Taking profits too early. A company that is doing well is sold because “there's enough profit already”, even though the thesis still holds. More on this: Investor psychology →

This content is for information purposes only and should not be construed as investment advice or a recommendation. Investing always involves the risk of losing capital. The value of financial instruments and investments can go up or down, and past performance is no guarantee of future returns.