When to Sell a Stock: 3 Smart Rules Every Investor Should Follow

In early April 2025, we experienced the biggest market downturn since 2020. When markets drop like this, many investors start asking: when should I sell a stock?
Most beginner investing guides focus on how and when to buy stocks — but knowing when to sell a stock is just as important, and often much tougher. In this post, we’ll cover smart stock selling strategies that can help you manage risk and protect your portfolio long term.

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Why Do Stock Prices Fluctuate?

Before we dive into portfolio management tips, let’s quickly revisit stock market basics.

Stock prices move based on supply and demand, just like any product or service. If a product is in high demand but short supply, its price rises. If there’s too much supply and not enough demand, the price falls.

It’s the same in the stock market.
When more people want to buy a stock than sell it, the price rises. When there are more sellers than buyers, prices drop — like we saw in early April.

While it may seem like you can instantly buy or sell stocks with online brokerages, in reality, there needs to be a willing buyer for every sale. This constant back-and-forth is what causes stock prices to fluctuate during trading hours.

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When Should You Sell a Stock?

So — how do you know when it’s time to sell a stock? Here are three key rules to guide your decisions:

1. Has the “Buy Theory” Changed?

When you first invest, you should have a reason — a buy theory.
For example, maybe you bought Apple because it’s financially healthy, growing, and a leader in mobile technology. That theory holds as long as Apple continues performing well in its core markets.

As long-term investors, you don’t need to obsessively watch a stock every day. But it’s smart to periodically review the fundamentals. If revenue, profits, or cash flow decline over several years, or competitors start grabbing market share, it could mean the original reason you bought no longer applies.

A shift in fundamentals is a common reason to sell a stock — and an important part of any stock selling strategy.

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2. Has the Company Broken a Hard-and-Fast Rule?

As investors, it’s crucial to have non-negotiable rules to manage risk and keep emotions in check.

For example, one of my personal dividend investing rules is simple: If a company cuts its dividend, I sell immediately. No exceptions.

Why? Because dividends signal financial stability and provide passive income. A dividend cut often indicates deeper financial trouble, and it breaks the original investment theory I built my decision on.

Another rule might be selling if a previously profitable company suddenly posts a year of negative earnings without a good reason. These hard-and-fast rules are guardrails to protect your portfolio and guide your decisions.

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3. Has the Company Become Overvalued?

One of the trickiest situations is deciding when to take profits on stocks that seem to keep rising.
Yes, it feels great when a stock soars — but overvalued stocks can be risky.

To assess this, compare valuation metrics like:

• Price-to-Earnings (P/E) Ratio
• Price-to-Book (P/B) Ratio
• Price-to-Sales (P/S) Ratio
• Price-to-Cash Flow

Check these against the company’s own historical averages and industry peers. If the stock seems overvalued relative to its intrinsic value, it might be time to sell some shares.

As Benjamin Graham wisely put it:

“In the short term, the stock market is a voting machine, but in the long term, it is a weighing machine.”

In other words, hype can temporarily inflate stock prices, but over time, stocks tend to reflect their true worth. Selling a portion when a stock feels overheated lets you lock in profits and rebalance — especially if it’s grown to represent too much of your portfolio.

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Final Thoughts on When to Sell a Stock

Investing is a personal journey.
When I first started, I struggled to know when to sell. Sure, I wanted to make a profit — but timing it was tough. I also didn’t want to hold onto bad stocks hoping they’d recover.

These three rules — your buy theory, hard-and-fast rules, and monitoring for overvaluation — give you a practical framework for making smarter, more confident decisions. They’re essential stock selling strategies every investor should consider.

Everyone will have different investing philosophies and portfolio management tips that work for them. The key is to understand yourself, your investments, and when to make a move.

Disclosure: The content provided in this blog is for informational and educational purposes only and does not constitute investment advice. Always perform your own research and consult with a licensed financial advisor before making any investment decisions. For our full disclosure go here to our privacy page.