In many cases, the decision to sell a stock should go back to why you bought it.
“Know what you own and why you own it,” says Deborah Ellis, a Los Angeles certified financial planner. The reasons can vary: You bought a stock for its dividend payments, or its high-growth prospects or as a speculative bet. In any event, if the stock no longer fulfills its purpose in your portfolio, “it’s time to sell,” says Ellis.
The pros have a similar approach.
Stock fund managers typically build a case for every stock in their portfolio. It’s often tied to a catalyst that will drive earnings growth, such as a new product or a company reorganization. If the catalyst fails to pan out, they sell.
Says Eddie Yoon, manager of Fidelity Select Health Care fund, a member of the Kiplinger 25 list of our favorite no-load funds, “It’s straightforward for me. I thought a drug was going to work and it doesn’t. The stock falls a lot, and I sell.”