AboutJay Kay Expertise As a private investor for the past 40 years, I have experienced both bull and bear markets, and have lived to tell the tale. I should be able to provide you with serious, practical insights into managing stocks, bonds and mutual funds in your portfolio, along with useful information concerning most aspects of personal finance. No specific stock/bond recommendations furnished.
Question I would like to know when you would consider the right time to sell a stock that increases in value? I bought shares a stock not to long ago and it is already up 32% and in this market i'm thinking I should take my profits whenever I can take them but then again i'd be driving myself crazy if I sold and the stock kept increasing in value. Any insight on this would be very helpful, thank you
Answer Many approaches have been offered to solving this very familiar problem, but probably none will seem altogether reasonable to everyone. I'm sure you will admit it's a nice problem to have. My feeling is that the matter is best handled as if you were considering buying more shares of that stock right now, regardless of when you bought it last or how much it has risen since then. The shares have no memory. They are either a good buy (i.e., a good value) at this moment, or they are not. You had precisely the same decision to make when you bought the shares that you now own. If you had not bought the stock then, you would have missed a 32% rise. That does not mean the stock cannot rise further. Assuming you had solid reasons for making the purchase then, why not apply the same type of thinking now? Of course the share price will not rise endlessly, but neither must the price begin to fall because it has risen 32%: in other words, a 32% rise is not a solid reason for anyone to predict a falling price from this point on. The share price may fall, but it will not do so because it has risen 32%.
Some investors decide beforehand to put a floor under a rising (or, for that matter, falling) share price (e.g., "I will sell when the shares rise/fall 10%"). This takes willpower. It does not, however, solve the problem that confronts you, since there is nothing magical about 10%, 32%, or any other number. Ask yourself if your stock is still a good value, worthy of purchase if you owned no shares, or a thousand shares. If it is worthy, why sell it? Why not buy more? If it is no longer worthy, sell it and look for a better value elsewhere. If you absolutely canot decide, enter a stop order for a portion of what you own, and live comfortably with the result. Don't short-change yourself trying to squeeze the last dollar out of what is a very successful investment.
How do I know that this is the best way to proceed? I don't.
But that's what I would do.
Good luck.
