January 28, 2014

Know When to Hold ’Em

Credit: stockimages
One of the most important questions I try to help people answer is when they should sell a particular stock. It’s a valid question, and if someone has a large number of shares of a single stock or a significant portion of their wealth is directly tied to one company’s stock performance, it can be one of the most important questions I ever help them answer.

There are many methods available in determining when the “perfect” time to sell a particular stock is: you could rely on your gut instinct, you could go with what everyone else is saying about the stock, you could try to read into the latest analyst estimates or quarterly earnings release, or you could take my advice and rely on Kenny Rogers. You probably know by now that I am big on using analogies to help explain complex financial issues in a way that can actually be understood, and helping someone decide when to sell a stock is no exception. I can offer fancy, technical analysis all day long, or I can quote a few lines from Kenny Rogers’ “The Gambler:”

You got to know when to hold ‘em,
Know when to fold ’em,
Know when to walk away
And know when to run

You should probably consider holding your specific stock if you do not have a specific cash flow need for the stock proceeds, you are debt-free, and most importantly, you have already reached financial independence with prudently diversified assets. However, by shrewdly taking some of the gain off the table when your stock has made some money, and by avoiding the temptation to always wait for one more dollar in stock price, you may avoid having to fold (sell) your stock when it is down at an inopportune time.

You should probably walk away from your specific stock if you know your stock has generated enough gain to provide for a specific cash flow need (such as paying for your child’s college), has generated enough gain for you to reach financial independence (assuming you sell your stock and smartly reinvest the proceeds in a prudently diversified strategy), or if you believe that the stock’s price will be flat or lower in the near future. It’s true that you might be better off if you had held your stock a little longer and its price continued to rise, and you should always consider the tax implications of selling you stock, but there is something to be said for walking away with a bird in hand.

If your specific stock has generated more than enough gain to provide for a specific cash flow need or allow you to reach financial independence, what are you waiting for? Run! I always keep in mind a comment a client shared with me once: “Little pigs get fat. Hogs get slaughtered.”

So what should you do with your individual stock holdings? It still depends. Please know that I’m happy to help you determine what you should consider doing with your stock and/or the proceeds from your stock. I just caution you not to count your money when you’re still sitting at the table. There will be time enough for counting when the dealing is done!


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