Whether an investor should sell stocks now or hold onto them is an important question to explore, especially because selling a stock too soon can greatly diminish returns—while in some cases, holding too long can lead to a loss of your investment

When you are learning about investing, and preparing to invest more money in stocks, it’s a good idea to keep a notebook about stocks you are thinking about buying. Even if you can’t buy, you can still commit yourself on paper.

If you keep this journal for two or three years, you should begin developing a sense of when to make buy and sell decisions—“when to pull the trigger,” as professional investors say. This can go a long way toward turning you into a Successful Investor. You’ll find that you have to learn to make these decisions to sell stocks now while there is still some doubt in your mind.

If you only buy stocks after all your doubt is gone and you’re sure you’re going to make lots of money, you will often wind up with small profits if not losses. This seems paradoxical to many non-investors, but it makes perfect sense.

In the stock market, doubt is greatest and investors are most fearful when the market is near its lows. As doubt and fear give way to optimism and confidence, more investors buy and stock prices rise. As those prices rise, potential rewards dwindle. By the time all doubt and fear have evaporated, prices are at or near their highs.

If you make a habit of waiting till all doubt is gone before you buy, you are almost certain to achieve poor results. You will be the proverbial “last person to get the news.” Many of your stocks will go down after you buy, and some will stay below your cost for a long time.

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What investors need to consider before they opt to sell stocks now

Every case is different. However, you can start by looking at why you bought the stock in the first place.

Suppose you bought it because you liked the stock’s earnings and dividend history, and you thought it had a lot of growth potential. These are markers of a high-quality stock. If a stock like that drops after you buy, you need to resist the urge to sell. Instead, update your view.

Did the stock go down because of temporary bad news, such as a single quarter of weak earnings? Or did it drop due to seemingly bad political or economic news in one of the markets it serves? If so, was it a major or minor market for the company?

Or, did it drop because of something more serious that could endanger the dividend and undermine its long-term potential? For instance, tech stock investors sometimes stampede out of a stock if they hear it is falling behind its competition. That can be a serious problem. However, tech competitors sometimes leapfrog each other as they strive to improve their products.

If you sell stocks now at “a peak” it may undercut your profits

Attempting to sell stocks at a peak price isn’t a great idea. Sure it sounds good in theory. But in practice, it simply doesn’t work. You will most likely end up selling your top rising stocks at a bargain.

When it comes to adding value to your investing efforts, one of the least productive things you can do is to try to “time” the market. By that, we mean attempting to sell good stocks at what looks to you like a price peak, in hopes of buying them back later at lower prices.

One of the hardest things about successful investing is that it’s easy to form a strong opinion on the market’s next price trend, and then find that the market does something totally different from what you expected. That’s why you want to confine your buying mostly, if not entirely, to high-quality stocks that meet our Successful Investor criteria. They tend to hold on to their value over long periods.

Sometimes your strong opinions will turn out right. Other times, you’ll sell at what looks like a high price, only to find that some new information comes along that spurs the stock to much higher prices. Sometimes, you’ll sell a stock that looks “high,” then use the money to buy something else that looks cheap. But your cheap stocks get even cheaper while the rest of the market continues to rise.

You’ll often meet investors who are eager to tell you in great detail how they determined that a seemingly top rising stock, or the market as a whole, was over-priced, and how they sold just in time to avoid a 10% or 20% downturn. Avoiding a downturn feels good and makes a good anecdote, but that’s not the same as making money.

Should you sell stocks now? Always use caution before selling high-quality stocks

As a rule, be slow to sell high-quality stocks, and quick to sell low-quality stocks. That’s because high-quality stocks chosen using our Successful Investor philosophy make better long-term investments. They tend to recover faster from a setback, and are more likely to go on to new peaks.

It’s essential to invest the bulk of your portfolio in stocks that have some history of sales, if not profits or cash flow. If you break this rule and invest in, say, junior mines or tech startups, you should only do so if you have a high opinion of the value of the junior’s assets and/or business plan. You should buy the most speculative of these with money you can afford to lose. After all, you could very well be mistaken about their value. Your low-quality buys might eventually wind up worthless.

What factors lead you to sell stocks instead of waiting to see how the market performs?

If you attempt to sell your stocks at a peak price, how do you determine where that price point is?