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Most people spend more time evaluating a stock to buy than deciding whether it is time to sell. Evaluating a stock to buy is the easy part of the equation. Deciding when to sell is much harder. I have been investing in the stock market for 30 years and I still find the act of selling difficult. Listed below are my top reasons for selling a stock:

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You’re holding on for emotional reasons. People often hold on to stocks longer than they should because of their emotions-even in the face of the obvious. Maybe a stock has been a big winner and you love to tell your friends how much money it’s made you in the past. Separate your emotions from the facts and make decisions based on logic and good information.

The Stock is overvalued. Maybe the Price to Earnings ratio is too high or the Earnings per Share growth or revenues have declined. It could be some world event hurt the industry (higher oil prices cause airline profits to drop). If you feel your stock is overvalued, sell all or at least part of your holding, wait for the price to settle in a more realistic range, and then buy it again.

The reasons you bought are no longer valid. You bought a stock because it was under-priced or you were expecting a major surge in earnings. If your expectations don’t materialize, you should consider selling.

Other investments might offer a better return. If you can earn more money somewhere else, you should take advantage of the opportunity. Perhaps there is a better stock to buy or there may be a piece of land you feel will give you a greater return.

One stock dominates your portfolio. Sometimes a stock goes up so far in relation to the rest of your portfolio you are no longer properly diversified. If this happens you should cut back on your holding.

You do not have time to recover from a market decline. If you are nearing retirement or must make a major purchase and you need the money invested in your stock in the next few years, sell or partially sell and eliminate your risk.

The only reason you are hanging on is that you don’t want to admit you lost money. Sometimes people do not want to admit to picking a bad stock and they hold on even though the stock shows no sign of recovery.

You do not want to sell and take a tax hit. You may have capital gains in a stock in November but you want to wait until January to sell so you can delay paying tax for a year. Once January rolls around, however, the stock may have dropped in price and capital gains are not longer an issue. Remember the old adage: Nobody ever went broke taking a profit.

If you actively invest in the market you will make some of these common mistakes. When you do, learn from it and be determined not to make the same mistake twice.

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