Learning when to sell dividend-paying stocks will help you keep your best-performing stocks even longer, so you don’t miss out on future gains.

Do you know when to sell dividend-paying stocks—or indeed, any of the other stocks in your portfolio? If you lack patience, you run a big risk of selling your best choices in the midst of a temporary downturn, prior to the next big move upward. Meanwhile, if you lose patience and sell, you are particularly likely to do so at the low end of the trading range, when stock prices have weakened and confidence in the stock has waned.

It’s a mistake to base your decision to buy or sell a stock on past stock-price performance alone. A stock never gets so high that it can’t keep rising, or so low that it can’t keep falling. That’s why you have to look beyond price changes and focus on investment quality when deciding whether to buy or sell.

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Knowing if, or when to sell dividend-paying stocks is important, especially if you plan on attempting to buy them back at a lower price

Some investors feel they can cut their investment risk by selling some or all of their stocks in times of high risk, and buying them back when risk is low. This never works well for long. It’s hard to pinpoint market turning points, if only because so many smart people are trying to do the same thing. You’ll rarely if ever sell near the top, nor buy back near the bottom. If you could do that with any consistency, after all, you’d wind up owning a measurable proportion of all the money in the world.

If you constantly worry about the “big picture,” you may at times manage to sell at just the right moment to sidestep a serious downturn. But you may only do that after sitting through a series of downturns. The downturn you avoid may turn out to be the last in a series—the “final leg downward,” as short-term traders like to refer to it.

When to sell stocks at the right time? Here’s our advice.

Investors often ask, “When do I sell?” There is no simple, fits-on-a-t-shirt answer to the question. But there are some helpful guidelines.

First, you’re never going to sell stocks at the top or buy at the bottom. As Bernard Baruch said, “That can’t be done — except by liars.” That’s why we’re so selective about our stock market recommendations. The better the quality of the investments you buy, the less you have to lose by a failure to sell.

In fact, regardless of whether you are an aggressive or a conservative investor, the quality of your investments matters much more than your skill at selling.

Second, you should be quicker to sell aggressive stocks than conservative stocks. With stocks we rate as “Speculative” or “Start-up,” it pays to apply our sell-half rule. That’s when you sell half of a stock that doubles in price.

Third, when a stock you own is getting taken over, it usually pays to tender for the takeover. That way, you get the full takeover price and you don’t pay brokerage commissions. Selling one month ahead of the takeover can cost you, say, 3%. On an annualized basis, that’s like missing out on a 40% profit.

Many investors mistakenly assume that frequent profit-taking is the key to long-term success. Few brokers disagree, since they make money every time you buy or sell. But in the long run, taking profits simply because profits are available is going to cost you money. That’s because of the way the stock market works.

Understand these guidelines as you consider when to sell dividend-paying stocks (or other stocks)

• Be quicker to sell low-quality stocks, and slower to sell shares of high-quality stocks.
• Before you sell, ask yourself this: does the stock have a poor outlook? Or do you want to sell because it just doesn’t fit your portfolio? If neither condition applies (and you just think it has gone up too far or too fast), then you should ask yourself if selling will improve your portfolio. Also ask yourself if you’re altogether willing to fiddle with the stock. It’s not only about knowing when to sell stocks but also if you should even touch them.
• Avoid portfolio tinkering, especially when it comes to selling stocks that you feel have gone up too far and too fast. To succeed as an investor, you need a big winner in your portfolio from time to time. One key fact about big winners is that they tend to go up further and faster than most investors expect, and they keep doing it for years if not decades. If you sell them when they’re just getting started, you may never experience the joy or profit of having a big winner in your portfolio.

Use our three-part Successful Investor approach to build your portfolio—including dividend-paying stocks

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

At what percentage price gain do you start to think about selling a stock, even a quality dividend payer?

How often do you sell your stocks?