When you own stock you get to participate in the company's financial fortunes, whether those fortunes are good or bad. Generally speaking, the market price of stock in a stable, well-managed company that regularly turns a profit will increase, but there are no guarantees. Events outside of the company's control, such as a bust in the general economy and negative investor sentiment, can drive down your stock price. Whether your stock increases and you want to take a profit, or it declines and you want to limit your loss, you have to sell your stock to realize your gain or loss.
Develop an investment plan before you start trading stocks to help keep you from getting emotionally attached to your stock investments. Your stocks are not your spouse and you should not be married to them. Things to consider when developing your investment plan include your tax situation, your investment goals, your aversion to risk or investment temperament. Determine in advance what situation should trigger a decision to sell. For example, you might be willing to sustain a 20 percent loss in stock price if you believe the company will be successful in the future, but a 25 percent drop might be too much of a loss for your portfolio to sustain. Perhaps the stock is a hot investment and the market bids the stock price far above what you know its earnings can sustain. In this case, it might be time to sell.
Find a suitable investment broker. If you don't have a broker you will need to open an account with a brokerage firm. Research your options before signing with any firm. Check the firm's registration and license with your state securities regulator or the U.S. Securities and Exchange Commission. The Financial Industry Regulatory Authority offers a free broker check service that can provide valuable background information on brokers. With the advent of the Internet you have plenty of options: full-service brokerage firms that provide personal service; discount brokerage firms that offer many of the same services but without a personal representative; and online brokerage firms that provide you will the tools to make your own investment decisions.
Place your order. When you sell common stock you have several options on the type of order you enter. The simplest order is the market order. This is a blanket order to sell at whatever price is offered on the open market. You can put in a limit order, which designates the lowest price you are willing to sell your stock for. For example, if the market price of your stock is $43 per share, but you want to get at least $45 per share, you can put in a limit order. A limit order doesn't trigger unless the target price is reached. You can also put in a stop order, which also doesn't trigger unless the target price is reached, but in this case it triggers when the stock in moving down. For example, suppose you bought your stock at $35 per share and it is trading at $43. You believe the price is going to continue to increase, but you want to protect your profits if it suddenly drops. You can set a stop order at $41. As long as the stock price continues upward, the order will not execute. If the stock price declines to the target price, the order triggers.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.