Selling stocks can be a good idea if you’re doing it for the right reasons.
Key Points
- Sell if your thesis for the investment changes . Or the fundamentals of the firm go worse .
- Selling when a firm is bought. This is particularly true for all cash transactions.
- Sell if overexposure to stock poses a financial risk, and rebalance your portfolio.
When to Sell Stocks: 5 Reasons to Sell a Stock,
There are good reasons and bad reasons to sell a stock. While it’s usually a terrible idea to sell a stock only because its price has moved higher or lower, there are occasions that fully warrant putting one or more sell orders.
Let’s take a look at some solid reasons to sell a stock, when to sell a stock for a profit or loss, and what situations should not be causes to sell a stock.
Reasons to sell a stock
Here’s a rundown of five scenarios that can justify selling a stock.
1. Your investment thesis has changed
The reasons you acquired the stock may no longer be there. Consider the reasons why you acquired the stock in the first place, and ask yourself whether they still hold true. You need an investing thesis for each of your stock investments, rather than merely wanting to earn money.
If something fundamental about the company or its stock changes, that can be a good reason to sell.
For example:
- The firm is losing market share, perhaps because a rival is offering a better product at a lower price.
- Sales growth has clearly decelerated.
- The corporation is under new management.
- Managers are making irresponsible moves, such as taking on too much debt.
Of course, this list isn’t exhaustive. The point is that if something substantially changes that contradicts your investment thesis, that’s one of the best reasons to sell.
2. The company is being acquired
Another strong incentive to sell may be a firm’s announcement that it has agreed to be acquired.
Once an acquisition is disclosed, the firm’s stock price usually increases to a level around the agreed-upon purchase price. Upside potential from here may be rather limited; therefore, you may want to lock in your profits immediately once the transaction is announced.
Specifically, the way a company is acquired affects whether selling your stock is the right decision.
A company can be acquired in cash, stock, or a combination of the two:
- In all-cash purchases, the stock price tends to converge rapidly with the acquisition price. But if the purchase falls through, the company’s share price might collapse. It’s seldom worth keeping your shares long after an all-cash takeover is announced.
- The question for stock or cash-and-stock transactions is: Do you want to be a shareholder in the acquiring company? That’s the basis for your choice to hold or sell. Real estate broking Redfin (NASDAQ:RDFN), for example, agreed to be bought by mortgage giant Rocket Companies (RKT -3.41%) in an all-stock transaction in March 2025. There would have been a compelling motive for Redfin investors who didn’t wish to become Rocket investors to sell their shares.
3. You need the money, or soon will
Generally, it’s good practice not to invest in the stock market with any money you plan to need in the next several years. Sure, if you need the money, then that’s a good reason to sell.
Maybe you want to buy a home and sell some shares to help with the down payment. Or perhaps you have children who will be going to college in a few years and want to change your stock holdings to safer assets such as certificates of deposit (CDs).
4. You need to rebalance your portfolio
Your financial portfolio may become out of balance in one or more ways. That’s why most investors need to rebalance their portfolio from time to time — and that may mean selling some shares.
These are two of the most common circumstances preceding a stock sale:
- Having a high-flying stock: If you possess a stock that has gone up a lot in price, you might have a major chunk of the value of your portfolio riding on the firm. That is a nice issue to have, but if you are not comfortable having so much of your money invested in one firm, you may want to sell some of your shares.
- Want to lower your stock exposure: As you approach retirement, it’s a good idea to slowly decrease the amount of stocks you own in your portfolio and replace them with safer assets such as bonds. One rule of thumb is called the Rule of 110—you subtract your age from 110 to get the proportion of your portfolio that should be in equities. If your portfolio is overly heavy in stocks, selling some holdings to rebalance it might be a beneficial move.
5. You identify opportunities to better invest your money elsewhere
Ideally, you would have extra cash to invest whenever you saw an appealing investment opportunity. If this is unlikely, you may elect to sell shares and invest the proceeds elsewhere.
Let’s imagine you see a great purchasing opportunity for one of your favorite companies, and you want to put 10% of your portfolio into this investment. If you don’t have 10% of your portfolio in cash, you may choose to sell some of the shares of other companies or exchange-traded funds (ETFs) you hold to raise some capital.
Even if there’s nothing wrong with that company or ETF, seeing a great long-term opportunity somewhere else might be a perfectly good reason to sell.
Just be aware that there’s a fine line between selling to take advantage of an opportunity and overtrading.
When to sell stocks for profit
Selling a stock for a profit is a solid rationale for any of the following. If you have made a return on an investment, there may be further reasons for selling the stock in order to pay for a big purchase, to cover your costs of living in retirement, or as a part of your portfolio allocation plan.
However, don’t sell a stock for profit just because the price of the share has gone up. That would be falling into the trap of thinking that “taking some money off the table” (if a stock goes up in value) is a good idea.
To be clear, selling just because a stock went up is a terrible reason.
When to sell stocks at a loss
Similarly, it’s typically not a good idea to sell a stock merely because its price fell, unless one of the reasons above applies.
That said, selling lost assets (particularly if you find better chances elsewhere) might help you save money on your taxes. Investment losses may be used to offset capital gains.
As the great investor Warren Buffett says, “If you find yourself in a hole, the most important thing to do is stop digging.” If the initial thesis for buying the stock no longer holds, or you were simply flat-out wrong about the firm, then selling to realize a loss instead of holding on may be your best choice.
When not to sell a stock
It’s important to know when not to sell a stock. Here are some of the situations in which it’s inadvisable to sell your shares:
1. Don’t sell a stock because the price goes up. There is a reason why winning stocks go up, and they tend to stay on a winning streak.
2. Don’t sell a stock because its price went down. All investors aim to buy cheap and sell high. If the reasons you acquired the stock still apply, then selling it because the price dropped is essentially the reverse of what you should do.
3. Don’t sell shares solely to avoid tax. The tax approach we’ve mentioned before, tax loss harvesting, may decrease your taxable capital gains by suffering losses on underperforming stock investments, but it’s still a terrible idea to sell equities merely to minimize your taxes. Tax loss harvesting is a clever way to save on taxes, but you should only be selling a losing stock if you have other good reasons to do so.
The Motley Fool also regularly sells stock.
The Motley Fool has a long-term investment viewpoint, but that doesn’t mean we don’t recommend stocks to purchase.
We often advise our members to “sell,” and typically for one of the reasons outlined above. There may be many good reasons to sell a stock, and many long-term-minded investors often have reasons to sell off sections of their holdings.
This Tech Could Be Worth 18 Nvidias
The CEO of Nvidia has said there’s one discovery that might produce more billionaires in the next 5 years than the internet did in 20 years.
The effect is ‘impossible to overestimate,’ Amazon’s Jeff Bezos says. Cathie Wood sees a potential of $80 trillion for AI by 2030. That’s comparable to 18 Nvidias, 21 Microsofts, or 33 Amazons.
But what most investors overlook is that practically all that growth goes via a single choke point. One little-known business, an “Indispensable Monopoly,” supplies the crucial technology that Nvidia, AMD, and Intel cannot operate without. And it’s still a fraction of Nvidia’s size. We recently published a whole new report with the firm name and the entire narrative.