When Should You Sell A Stock?

Welcome to Episode #55 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

In this episode, Tracey is joined by Steve Reitmeister, Executive Vice President of Zacks and the editor of the portfolio service the Reitmeister Trading Alert, to discuss the important topic of when to sell a stock.

A lot of focus is put on what stocks to buy and when, but very little is put onto the other end of the equation of when you should sell a stock. But it is just as important for investors to learn when to sell as it is when to buy.

There are two scenarios for selling a stock:

1. Short term traders: they can use the Zacks Rank system by selling Zacks Rank #5 (Strong Sell) stocks.

If you used the Zacks Rank system to trade the fertilizer stocks like Mosaic (MOS), for instance, you would have seen it as a Zacks Rank #5 (Strong Sell) or #4 (Sell) for the last eleven months. That’s sending a strong signal.

What about selling stops of 10% to 20%? Tracy and Steve discuss whether or not they recommend stops to contain losses or harvest gains.

Short term trading can also be very emotional where traders try to “make it back” after bad news hits the stock.

Tracey and Steve discuss what happens when your company is in the news for unsavory behavior and whether or not you should sell on an earnings miss or when guidance is lowered.

2. Long term investors: this is the harder of the two scenarios because long term traders can get complacent.

Make sure you keep up-to-date on your company and keep watch on the business. Many of those in Xerox (NYSE:XRX) over the last few decades have seen a real change in the business.

For those in it for the long term, rising earnings estimates are still important. Microsoft (NASDAQ:MSFT) may have higher growth now but for many years, earnings were stagnant. Should you have sold it years ago?

Issues which can impact a long term investment can be a technology or product that becomes obsolete; change or death in management such as at Apple (NASDAQ:AAPL) when Steve Jobs died; and corporate scandals, including fraud or accounting mis-management, like the stories swirling about Banc of California (BANC) this month.

What else should you know about when you should sell a stock?

Tune into this week’s podcast to find out.

Want to know how to short a stock? Listen to the podcast below:

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec and she also hosts the Zacks Market Edge Podcast on iTunes.