Selling Stocks: A Practical Guide

Buying a stock does not always prove to be a good move. In some cases, a stock investment can turn out to be a big mistake. This moneyland.ch guide tells you when it makes sense to sell a stock.

When does selling a stock make sense?

Selling a stock can make sense If one or more of the points listed below applies:

• The investment was a mistake: The rule of thumb is that if you would not buy shares in a stock today, that stock does not belong in your investment portfolio. If, for example, you are no longer satisfied or no longer identify with the company’s business model, products, corporate strategy, or leadership, then divesting from that company can make sense.
• The stock is overvalued: If an analysis of the company’s fundamentals reveals that the stock’s price is not justified by the company’s actual assets and business model, then selling the stock is worth considering.
• The stock does not match your investment strategy: Certain stocks may no longer be compatible with your long-term investment strategy. If, for example, you adopt a wide-moat stock investment strategy, then more volatile stocks may no longer align with your investment philosophy.
• You want to balance your portfolio: It is possible that a company’s stock might make up a larger share of your total portfolio than you are comfortable with. In that case, selling some shares in that stock can help reduce its weighting in your stock portfolio.
• You want to sell shares at a profit: Gains in a stock’s value are only converted into actual capital gains when you sell shares. Selling shares for a profit is particularly sensible if you expect the stock’s price to fall in the future.
• You need liquidity: If unexpected expenses come up and you desperately need money, then you may have no alternative but to liquidate your stock investments. In the worst-case scenario, you may be forced to sell at a loss. In order to avoid these situations, it is beneficial to have an emergency fund. This prevents your having to sell out of mid-term and long-term investments to fill financial holes.

Important: The list above does not include all possible reasons for why selling a stock could make sense. Other reasons could apply to your individual situation.

When does selling a stock not make sense?

Many people sell stocks based on emotions or impulses, instead of on well-founded reasons.

• Impulsive reactions to falling stock prices: The value of stocks is constantly fluctuating. Even relatively stable stocks can lose value for certain periods of time. If you impulsively sell your shares, you can potentially lose a lot of money in potential returns. As a general rule, any emotionally-driven decisions are best avoided when it comes to investing. On the other hand, if a stock has been performing poorly for a long time and you do not see any reason why its price may go up, then the option of selling may be worth taking a closer look at.
• Being too quick to follow opinions from analysts: Stock predictions and recommendations from analysts can provide a point of reference for investors. However, it is important to be aware that they are subjective assumptions that will only be proven or disproven as market developments unfold. The downgrading of a stock by an analyst is not enough reason to sell out. Take the time to look at the bigger picture, consider other opinions, and get informed about the company and its stock.

Which costs apply to selling stocks?

The fees are the same as those that apply when you buy shares. Every time you sell shares in a stock, your bank may charge you stock brokerage fees for the transaction. These fees vary broadly between banks. Possible currency exchange costs may also apply. It is worth comparing the total costs (including possible custody fees and account fees) of different Swiss banks using the interactive stock brokerage account comparison on moneyland.ch.

When you sell shares, you also have to pay the federal stamp tax. This tax is the same no matter which bank you use, and is 0.75 per mille (7.5 centimes per 100 francs) for Swiss stocks, and 1.5 per mille (15 centimes per 100 francs) for foreign stocks.

If you sell stocks a lot, then the stock brokerage fees can be a major cost. Example: If the stock brokerage fee is one percent of the transaction’s value, you will spend 100 francs on fees for every 10,000 francs worth of shares sold.

Can I sell stocks automatically?

Yes. Many banks offer several different kinds of orders that automatically offer your shares up for sale when certain criteria are fulfilled. Limit orders are one example: When the stock price reaches a certain, predefined limit, your bank automatically offers your shares up for sale. You can find out more about limit orders and other order types in the moneyland.ch guide to stock broker order types.

Can chart analysis help me know when to sell?

Some investors use chart analysis to try to find the perfect time to sell a stock. Historical developments in the stock’s price are carefully scrutinized with the aim of discovering trends that could affect future developments and predicting the best time to sell the stock. Chart analysis is also used in several different investment strategies. Important: The science behind chart analysis is strongly debated. Even with chart analysis, it is not possible to accurately predict future stock price developments.

Note: This article is provided for educational purposes only, and should not be considered investment advice. moneyland.ch does not accept any liability in relation to the contents of this article.

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