There are some very legitimate reasons to sell a stock and some very questionable reasons for selling a stock. As the market churns lower and lower more people tend to react emotionally and sell stocks for the wrong reason, which is why I wanted to take a look at some legitimate reasons to sell a stock. There is no flip of a coin here, or a purely emotional reaction, rather these are justifiable reasons to sell that stock of yours.
Five Legitimate Reasons to Sell a Stock
1. The primary reason you bought the stock has changed – When you buy a stock there should always be at least one main reason you buy the stock. A legitimate reason for selling a stock is the fact that the primary reason is no longer viable. For example, if you bought the stock because of a certain catalyst that the company would have coming up and the catalyst is no longer there, it is a legitimate reason to get rid of the stock.
2. Something major changed in your personal finances – Even if you think things are set on your personal finances, there is always the chance that something will come up to where there is an emergency and you need some cash. You always hope that this doesn’t happen, but the truth is it will happen every once in a while. If you have lost a job and need the income, selling a stock to get cash to pay some bills is certainly an option.
3. The fundamentals of the company have changed – If you are wise and informed investor you will always check out the fundamentals of a stock thoroughly before investing your hard earned money. If the fundamentals of the company undergo a drastic change and there is no longer a reason to hold the stock, selling is a very legitimate option.
4. You want to take profits – You can’t argue with taking profits in a stock that is a winner. I think if you believe the company still has a great future ahead of it, selling only part of your stake in the company is probably a wise idea. The fact of the matter is that no one can argue with someone who has cashed in nicely on a stock and wants to hold onto those profits.
5. The industry or sector is in trouble – This is more of an economic play than any of the others, but it does happen from time to time. For example, in recent months the banking industry has done absolutely terribly and anyone who sold a banking stock has looked very smart. There are times when a certain industry or sector is under fire in a major way and it simply isn’t worth it to hold onto your stock.
Don’t sell a stock without having a truly rationale reason for doing so. Those quick reaction sells generally turn into decisions that you wish you could have back. As with every part of investing in a stock, take your time and do the research before pulling the trigger.
Aaron K. Smith is a freelance writer with experience working in the mutual fund industry and writing about investing and the stock market.
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