The reasons to sell are often the opposite of why you bought.
You might sell an investment for any number of reasons that have nothing to do with what the investment has done. If you need money, you might decide to sell some shares of stock whether it has performed well or poorly. As time passes, your asset allocation [Hack #74] might become unbalanced, so you sell some of your winners to boost the percentage of the lagging assets. In your ongoing efforts to improve the quality of your portfolio [Hack #85] , you might decide to replace a perfectly good stock with one that happens to be even better.
However, to protect your portfolio, you also want to watch for the signs of deterioration in your holdings—sell signals. Technical analysts set up their rules for exiting a trade to limit the risk in their portfolios, as introduced in Chapter 5. Fundamental investors consider fundamental measures in their evaluations, as described in Chapter 4. When running the defensive plays in your portfolio, a checklist of your fundamental buying guidelines makes spotting sell signals easier.
Some sell signals represent serious deterioration in the growth and quality of a company. However, a company not living up to your expectations is just as serious. Your checklist for selling will depend on the type of company you are following and the measures you use for evaluations. However, the following measures are a good starting point for your sell signal checklist: ...