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Part 1: When to Sell a Stock

You made a mistake.
You misunderstood the fundamentals.

When there is a change in the company's fundamentals:
When earnings stop growing.
If top management quits or is forced out.
If the company stops creating new products.
If the company has cash flow problems:
--Is cash flow from operations growing less than net income?
--Is inventory rising faster than sales?
--Are receivables growing faster than sales?

When the stock is too hot.
When the stock price is soaring but fundamentals such as earnings growth are not.

When the stock is not keeping up.
The market is rallying but your stock is not.

If the stock is taking over your portfolio.
You may want to consider taking some profits off the table just so you won't be overexposed if the unexpected happens.

When you re-balance your portfolio.
If you decided that the best allocation for your circumstances is say 60% stocks, 30% bonds and 10% cash, and you need to re-balance your portfolio.

When you reach your risk tolerance.
The stock is too volatile for your nerves.

Moral or ethical reasons.
If the company's practices or products conflict with your social, religious or moral beliefs.

If the grass is greener.
When you find a company that offers better returns.

When you reached your goals.
It is time to retire and you sell some stock every year.

The stock dropped by X percent
You may set an arbitrary floor for the stock. When the stock falls to this floor, you sell.

When the company flounders because its business plan changes
The investor has to re-examine if it is still the same company or not.

When a stock is overvalued.

When it hits your price target.
When you bought the stock you established a range at which you would sell the stock, and the stock reaches that price.

After a merger.
You own a stock that is being taken over. The average takeover premium is 20% to 40%. Mergers have a lousy track record.

When there is a media frenzy.
If you find your big winner on the cover of Forbes or featured on CNBC, chances are good that those who want to purchase the stock already have or will soon. If you run out of buyers, the only place for the stock to go is down.

New highs on low volume.
If a stock has had a nice run, but makes new highs on decreasing volume, it is frequently the sign of a top.

Part 2: Bad Reasons to Sell a Stock:

When the investment has lost a lot.
A stock's price price doesn't tell you much about its future prospects.
If you really like it, maybe you should buy some more.

When the investment has gained a lot.
Just because it has risen is no reason to sell.
Most investors would be better off if they tuned out daily market updates.

When you need the money.
Selling because you need the money--regardless of how your investments are doing--is a terrible position to be in and one you should avoid at all costs.
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