When To Sell Stocks

You should sell stocks when the market price is too high. That is a

general rule, but it is necessary for you to study all the influences

affecting stock prices to be able to decide more accurately when you

should sell your stocks. We give you, in future chapters, much more

information on judging the markets.

Another general rule, is to sell stocks when nearly everybody is buying

them. It is a well known
act that the great majority of people buy

stocks near the top and sell near the bottom. Naturally when everybody

is optimistic, stocks will sell up high, but sooner or later they will

come down again, and when everything looks very promising is a good time

to sell. It is better to lose a little of the profit that you might have

made by holding on longer than not to be on the safe side. The man who

tries to sell at the top nearly always loses, because stocks seldom sell

as high as it is predicted they will, or, in other words, the

prediction of higher prices is advanced more rapidly than the prices.

We remember reading in 1916, when U. S. Steel sold up around $136 a

share, a prediction that it was going to sell up to $1000 a share.

Probably many people who read such news items consider them seriously.

Of course, that was a most exaggerated prediction, but during the

extreme activity of a bull market, it seems that nearly everybody is

talking in exaggerated terms of optimism. That is why most traders

seldom ever take their profits in a bull market. They wait until stock

prices start to come down, and then they are likely to think there will

be rallies, and keep on waiting until they lose all their profits.

On the other hand, some people make the mistake of selling too soon.

Just because your purchase shows a liberal profit is no reason why you

should sell. The stock may have been very cheap when you bought it. In

1920, Peoples Gas sold below $30. Those who bought it then were able to

double their money by the close of 1921, and many sold out and took

their profits. Of course, if they invested the proceeds in other stocks

that were just starting upward, they may not have lost anything, but

there was no particular reason for selling Peoples Gas at that time. The

public utilities generally were coming into their own, and nearly all of

them were regarded by economic students as having unusual opportunities

for profit.

Then again, it is not always a mistake to sell a stock in order to get

funds to put into something else that seems more promising, even though

the stock you sell is likely to go much higher.

It is very important that you should try to sell your stocks at the

right time. That is the main thing to keep in mind and it is better to

sell too soon than too late. Don't be too greedy and hold on for a big

profit. Read Chapter XXIV. on the "Possibilities of Profit."