When to Sell a Stock? (as a Dividend Investor)

Here's my 3 investing rules in dividend investing when I want to sell a stock.

When I started investing, I’d sell my shares once prices became “too high”. I’d sell my shares if the prices didn’t move at all. I took whatever quick profits I had – often, it was quick losses.

The more I did this, the more I was trying to chase my own tail. I couldn’t sit still. Put it this way, I spent more time trying to “time the market”, than to be a true investor who owns assets.

Back then, I read a book by Phillip Fisher. He taught me 3 golden rules on when to sell a stock.

He changed my strategy. And here’s when I’d sell my stock:

  1. When a stock no longer meets my investment checklist. This means, the company keeps reporting falling revenues, profits and its competitive moat is disrupted.
  2. I made a mistake (misjudgement): when facts of a company are actually less favourable than I first thought. Sometimes, I get carried away by the CEO’s smooth-talk. Sell.
  3. When I found better opportunities. Why? Different risk-reward conditions have serious implications on how we put our capital. Money follows path of better opportunities.

One more thing, I’ll sell a stock if valuation gets too expensive (overvalued).

For example, if shares go up and dividend yield gets too low, I’d sell my stock, take profits and reinvest into higher yield stock. I got this concept from the fixed income world – called a yield pick-up.

Whether my stocks go up, or my stocks go down, I’d ask myself these golden rules. I admit, it’s not easy to follow them. But the faster you apply, the better you get, the more consistent you compound income.

In investing, it’s also about habits and discipline.

When do you sell a stock?

I know many investors use “stop-losses”: you sell a stock when it falls below a certain amount. It’s popular to use, takes away hard decisions – don’t need to think much. Cut loss and you’re done. I don’t use this often, because this compels me to sell at the market bottom.

Sometimes, investing can be simple. 

Willie Keng, CFA

Founder, Dividend Titan

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