In my mind, it is always, always hard to sell a stock, no matter the situation.  If the stock is down, and it’s time to move on, it’s tough to take a loss.  The natural reaction is almost always to think it will reverse course.  The opposite is just as tough.  When a stock has done great, it’s hard to take profits because it’s often easy to fall in love with the stock and want to squeeze as much out of it as we can.   

    Let’s start with a pleasant scenario.  You have a stock that has soared over 80% since you bought it, and now it makes up a large share of your portfolio.  You face some tough choices.  You could hold it and hope for more returns, sell it outright, or sell off a portion to scale back your position.  It basically comes down to the best educated guess you can make. 

    If the company is still dominant in their industry, and the outlook looks good, there is nothing wrong with continuing to hold.  It must be kept in mind though that your portfolio will be more susceptible to changes in this large holding.

    If the shares have had a huge run-up, and through your research you believe it will be hard for the company to dominate much more, you could sell all of your holdings.  You can’t go too wrong here, but hindsight is 20/20, and you be kicking yourself 3 months later when it’s up another 40%!

    The third option is probably the best bet the majority of the time.  Since nobody knows for sure what a stock is going to do, it’s often a good decision to sell a portion and lock in some gains, while maintaining a position in the company.  Your portfolio will then be more balanced and diversified, plus you’re cashing in on your awesome pick!

    Well that was the fun situation;  the next one is anything but.  My sure-fire pick is down 40%, and I don’t know what to do.  I really hate to sell the stock, because I have a guy feeling it will come back, but on the other hand, there are some issues surrounding the company. 

    This one comes down to down and dirty research and the best-informed decision possible.  Using sources such as CAPS and other reports on the stock, I can make my choice about whether I want to jump ship or not.  It’s tough to have to cut your losses and move on, but sometimes it’s the smartest move.  Sometimes, though, nothing but blue skies may be ahead for the company and the best move is to load up on cheap shares.

    It’s key to know why a certain stock is down at a given time.  Often it’s nothing more than profit-taking after a big run-up, and it presents a good buying opportunity (Good use for dividend earnings).  Sometimes there’s an underlying problem that is driving investors away, and it’s time to evaluate the best decision to make.