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
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."