When to sell a stock: check what changed

Review a stock for sale when the investment case weakens, its valuation no longer supports holding, the position exceeds your risk limits, or you need the money elsewhere. A price move alone does not settle the decision.

Four reasons to review a holding

1. An assumption failed. Something the case depended on no longer holds: customers are leaving, debt is harder to service, or a competitive advantage is weakening.
2. The price reflects the case. Revisit the expected return from today's price. A business can meet your expectations while its shares offer less room for further gains.
3. The position has become too large. A holding can outgrow the allocation you intended. Trimming may bring risk back within your plan without abandoning the investment case.
4. Your priorities changed. A cash need, a shorter time horizon or a better use for the money can justify reassessing the holding.

These are reasons to investigate, not automatic sell instructions. Fidelity's guide to selling stocks similarly separates changes in goals, the investment case and position size.

Rebalancing is a portfolio decision even when the business is doing well. Investor.gov explains how it restores an intended asset allocation. Before executing a sale, consider applicable taxes and transaction costs.

Should you sell a stock at a loss?

A loss tells you the price moved against you. It does not, by itself, tell you whether the reasons you bought the stock still hold. The same check applies after a gain.

Price move	Investment case	What to review
Down 20%	Assumptions intact	Valuation and portfolio risk at today's price
Down 20%	A key assumption failed	Whether the failure undermines the whole case
Up 40%	Price reflects the case	Whether the expected return still justifies holding
Up 40%	Case still developing	Whether new evidence supports the remaining potential

There is no universal gain or loss percentage in this framework. Your purchase price is a record of the past; the review concerns what you own now.

Example: the same price drop, different evidence

Illustrative example. The company and figures below are fictional; the assumptions are specific to this case.

You bought Harbor Software because customers renewed its essential service and margins were stable. You wrote down a warning sign: persistent customer losses accompanied by weaker margins would undermine that case.

Six months later, the shares are down 20%. Compare two possible explanations:

• A temporary cost: Operating margin fell from 32% to 28% after a one-time migration expense. Renewals stayed steady. Check the filing's cost breakdown and whether recurring costs also rose. The margin decline alone does not establish a lasting deterioration; record what you will check next quarter.
• A weakening business: Margin fell to 28%, renewals declined for a second quarter, and the earnings release attributes customer losses to a competitor. That directly challenges the retention assumption. Rework the earnings outlook and valuation. If the revised case no longer supports holding, exiting may be justified.

Both versions begin with the same price drop. One calls for checking whether a cost is temporary; the other challenges why you own the business. Position size and cash needs still belong in either review.

Keep a record you can revisit

A memo or spreadsheet can work if you can find the original investment thesis and preserve earlier versions. Memory alone makes that comparison harder. Keep the record with, or linked to, the holding.

1. 01

   Write the case

   Reasons, risks and what would change your mind

2. 02

   Tie it to the position

   A price move and the case appear together

3. 03

   Compare new evidence

   Match each development to the assumption it touches

Review on a schedule, not only when the price forces you to.

Dated assessments · Version history · Assumptions listed separately

A short worksheet before you sell

Copy these prompts into your notes or trading journal. Fill them in for one holding:

• Holding and review date: …
• Original assumption: I expected …; evidence against it would be …
• New evidence: …; source and publication date: …
• Changed assessment: The assumption is supported, weakened or unresolved because …
• Valuation and portfolio fit: At today's price …; position size and cash needs …
• Decision and reason: Hold, trim, exit or investigate further because …
• Next review: On …, or sooner if …; check …

Keep the previous entry. The next review should show how your reasoning changed, as well as what the price did.