Sell Side Strategies

By Vita Nelson, Editor, The Moneypaper

       If you sell too soon, you may lose out on immense future gains; sell too late and you might watch your gains evaporate or your losses mount.
       There are no easy answers, but here are some tips to consider:
       When a stock moves up to the point where you can sell part of a position to get your money out and still maintain exposure to the stock, sell. Suppose you bought 300 shares of a $20 stock (investing $6,000), which moves up to $60. You might sell 100 shares to get your money back and leave your profits on the table.
       There are core holdings that you intend to keep forever, growing along with the company. Don't sell them. Investors who hold onto great companies are likely to beat traders over the long term.
       Then there are companies that you buy to trade. Set a mental goal when you buy and deliberately readjust that goal, stating specific reasons for the adjustment. When a stock's price reaches the goal, sell. Don't be greedy and don't use taxes on gains as an excuse for not taking your profits. (But you should try to hold for at least 12 months so that your profits will be long-term capital gains and you'll pay federal income tax at no higher than 15%, vs. as much as 35% on short-term gains.
       Everybody buys losers - even professionals - so, unless you bought with the anticipation of a long wait, take your losses and put the money into more promising stocks.
       Set a "mental stop-loss" before investing. You might be willing to take a 20% loss on this stock but reluctant to lose more. When the stock hits your stop, decide whether the reasons for buying the stock are still valid.
       Keep up with your holdings on the Internet. If the evidence points to a sell, do so and invest in a better prospect.
       Taxing matters. The most tax-efficient strategy is to sell your losers and let your winners run. When you sell stocks at a loss, you can use those losses to offset capital gains for the year. Excess losses up to $3,000 can be deducted to offset your ordinary income. Meanwhile, winning stocks that you buy and hold won't generate any capital gains tax.
       Editor's Note: Vita Nelson is editor of The Moneypaper, 555 Theodore Fremd Ave., Ste B-103, Rye, NY 10580. Monthly, 1 year, $99. www.moneypaper.com.