how do I know when to sell a stock?

[yclept]

My overall market stance determines the extent and bias of my holdings. The stance depends heavily on the 5-15-50 moving averages that I document on another thread. Right now my bias is short. I am moving towards that by selling more longs than I'm buying and by taking on some short ETFs.
I buy and sell primarily based on screen results using screens that backtest well over various periods (though they lose over prolonged market downturns -- usually much less than the common indices, but who wants losses of any size!). The screens are primarily based upon value considerations. A new stock appearing on the screen gets further investigation and upon verification of the undervalued status may be bought. A stock dropping off the screen is usually sold, unless some obviously bogus news (like an analyst release) is distorting the market perception of the stock's value. When the later is the case, I often double up the position size. I believe in catching falling knives when the fall is unwarranted.
But then, I sometimes buy based upon what seem to me to be maniacal oversold situations that are generating very low RSI or P/E ratios -- read "market overreaction". Those are always intended to be short-term plays -- held until the situation begins to correct itself. Last week I made some plays on URA and DXJ based on those criteria (documented elsewhere).
As soon as the reason I bought a stock becomes no longer true (or less true), I sell it. I will not hold a stock that I wouldn't buy today at today's price. When you think about it, what difference is there between buying and holding? A little commission? Commission becomes insignificant when compared to losses that may occur if a stock turns against you. I buy in quantities that keep my $7 ($14 both ways) Scottrade commission to 0.2% (position size $6k minimum), so it is truly not a relevant factor. Sometimes I sell just based upon the feeling that a stock has run too far too fast -- I just take the money and run. Often one can buy back that stock a week or so later when the momentum mania fades. Sometimes I buy back later at a higher price. Sometimes I just let it run away from me. There are many fish in the sea, and a bird in the hand is always worth more than two in the bush. Enough! I wouldn't want to get carried away with old idioms!
I almost never take tax considerations into the sell decision. For one thing, much of my trading is in a Roth IRA where there are no tax considerations. Even in the taxable account, I give it little or no weight. I want to pay taxes on stock gains -- it means I have stock gains!

I repeat: I will not hold a stock that I wouldn't buy today at today's price.

[yclept]

I just read the position sizes you take. I would not buy sizes as small as $50 -- commission becomes too large a consideration. If the $50 is all you can manage, save up at least 6 months of it and then make one buy of one stock. Forget about diversification with each buy when the amounts available are this small. Six months later you can diversify to the other stock.
When commission becomes a significant factor in the transaction, it distorts proper evaluation of the merits of the investment itself. I'm not trying to denigrate your available assets -- we all start somewhere. But at the same time I'm trying to point out that commissions have to be kept to insignificant amounts or they will eat you alive! And they will distort your decision process with what should be an item not worthy of consideration.

[yclept]

Oh, and for a disclaimer, this is just my strategy. Other people would be appalled at the above, but then, that's what makes a market! Your mileage will vary.

[2kids10horses]

horatio,

I think what Yclept was trying to say is: if you think a stock is too expensive to buy, then SELL. Don't hold because you hope it will go higher, because even if it does, then you'll hope it goes even higher... and so on. If it is too expensive to buy, then sell. I'm not talking about whether you have x dollars to spend, I'm talking about your determination of the per share value.

So, if the price of COP is $65, and you wouldn't buy any more shares at that price, SELL it. If COP is $65 per share and you would be happy to buy more, then hold on and/or buy more.

Selling, and making the decision to sell, is a lot harder to figure out (in my opinion) than buying. It is far better to sell to early with a small gain than it is to hold on too long and sell at a loss.

I have a book on my shelf, "It's when you sell that Counts". Ut's pretty good in it gets you into the mindset that you can't profit if you don't sell!

Good luck!

A

[yclept]

The old idiom, "buy low and sell high", you would never have any stock that goes to high, because you always would be selling sometime between 'low' and 'high'. Unless you would buy stocks that you think are not particularly cheap, stocks that are in the middle of 'low' and 'high'.

For me, the adage is aim to sell higher than you bought (for long positions). I don't try to catch the top or the bottom; I see it as a fool's errand.
My primary consideration is usually over or under valuation (except for the momentum flyers I take trying to exploit market over-reactions that I mentioned above). When I take a long position in a stock it is because a specific set of value criteria have been met. When those criteria are no longer true, I sell. Hopefully this is always due to the price having gone up, thus eroding the level of undervaluation I wanted to exploit. Sometimes the stock goes down, usually because the data used for the selection criteria was a lie (or at least wrong). In either case, when the selection criteria are no longer true, I sell.
I'm not saying that I usually buy every stock I own every day, thus continually adding to my position. I am saying that I will not hold a stock that (if I did not already own it) I would not buy today. Holding is the same as buying, except for commission.
A stock doesn't care who owns it or why they bought it. The price at which I bought a stock means nothing with respect to its prospects going forward.
Terry Bedford of Bedford Associates used to post on the old Supermodels board at MSN. The way he described this tactic is that he has a group of soldiers (his assets) that each day he sends out to take an objective. When the objective is achieved he has them come back home with the spoils (sells). He doesn't have them sit around in the now-ruined fort that the enemy had held (hold).
I too have a copy of "It's When You Sell That Counts" by Donald Cassidy. I would guess it's still in print. He gives some good selling criteria. One thing I particularly liked about his approach to selling is that he outlines some exercises to help people get over the fear of selling wherein one buys some small positions (options as I recall) purely for the reason of selling them "x" days later. Lots of people have an aversion to selling -- they don't want to "lock-in losses" or miss potential future gains -- neither of which have any relationship whatsoever to the prospects of an investment moving forward. It's very counter-productive.
One final point is that the absolute percentage gain (or loss) on a transaction is not as important as the timespan over which it was achieved. If I could turn my entire portfolio over every other day and achieve say 1/2% gain on it, I would be in hog heaven! That would represent roughly 125% gain per year. Find me a buy-and-holder who can even hope to achieve that. If I could have my assets at risk for a few days and make as much as I would have by holding some position for months, I am in a much more secure trading zone than buy-and-hold where I'd have to ride the market up and down continually.
Like I said above, different people have different methods. If we all thought and traded the same, there would be no market. In a few years, I expect that to be the case. Ever better machines and algorithms will take over more and more of the markets leaving nothing for the human mind to exploit.

[2kids10horses]

good words, yclept, good words!

It took me a LONG time to learn to pull the Sell handle.

Now, I've gotten so I almost enjoy taking the small loss, because I know that by taking small losses, I am avoiding large losses!

(I said "almost". Really, I did.)

Good trading to ya!

[2kids10horses]

horatio,

We weren't talking about scalping a few cents per share. I don't think there's anyone alive who could definitively state that xyz company is definately worth $59.90 and is a screaming buy, but it's not worth $60.00.

However, if you are asking how to possibly get $60 vs. 59.90 when you sell, then you are asking about Limit orders. When you place your sell order, you can state at what price you want to sell.

So, let's say you bought xyz at $50, and the stock moves your way, and you would like to sell at $60, even though right now the market is at $59.50. You can place an order with your broker to sell at $60.00. If the price continues to rise, and it rises to 60, you might get your shares sold. I say "might" because there may be other orders ahead of you that absorbs all the demand. If the price never reaches 60, your shares will not get sold.

These orders are called "Limit" orders.

[yclept]

I still dont get the "sell if you would not buy at the same price" theory

It's a value consideration, not some arbitrary absolute price for the stock. I don't buy a stock because it has reached some predetermined price as such, but rather because it has reached a level of undervaluation. As you say, the market is constantly changing the price of a stock. When it comes time to sell, one has to be ready to take some price in the vicinity. On low liquidity stocks, I often use limit orders, but it has nothing to do with some absolute predetermined price I expect to attain, but rather to keep my order from unduly influencing the market price to my detriment. I wait for someone who wants to buy/sell the same dollar volume as I am trading rather than letting my order work against me by being parceled out to multiple small orders at ever adverse prices simply because they were the only bids or asks available at that time. It's not the same as saying I will sell this stock for $70, but not for $69.50 as you seem to imply.

whatever case you make has to have numbers that are real close where you would hold the stock and not be buying more.

I'm not quite sure what you mean by the above. The buy/sell decision is not price dependent except as price is one of the components of the value evaluation. Also, buying more of a stock already owned (or a larger position than usual) are position sizing considerations -- that's a completely different portfolio discipline than stock selection.
The underlying value of a company is continually changing. Likewise the price of a stock is continually changing. I attempt to identify issues where the market price does not properly reflect the value. It has nothing at all to do with the numeric value of the price.
I have owned COP twice so far this year with these results:

Position	Bought	Price	Cost	Sold	Price	Value	Net	%Change	Commish
80	03/17/11	76	6087	03/18/11	76.87	6142.6	55.6	0.91%	14
100	01/27/11	69.18	6924.8	02/09/11	70.73	7065.5	140.7	2.03%	14

It was bought and sold because it was popping on and off of a value screen I use. My market bias at that time was "long", so I was buying any new ticker that the screen pulled and selling any that it dropped. Of the two transactions, I much prefer the one with the smaller profit (1%) because it was attained in one day. Is COP higher now than when I traded it? Yes. Do I care? No. I sold it because the reason (screen) for which I bought it became untrue. The screen was telling me that some other stock had replaced it and offered better prospects going forward.