Thank God We Sold Your Stock

Selling a stock isn't all that different from buying it in the first place. It's pretty much the same process. You log into your brokerage account -- or pick up the phone to call your full-service broker -- and execute the trade.

So why is it so hard to sell?

Trading can feel a lot like a romantic relationship. Buying in is easy, exciting, fun. Selling? Well, breaking up is hard to do.

So let me tell you what I'm going to do for you today. I'm going to make you a better investor by teaching you how to be a better seller. I know, you may very well run circles around me when it comes to the art of picking Wall Street winners. I'll concede that. Now do me the mutual favor by conceding that you're just not all that sharp when it comes to letting go.

A history of sell recommendations
As one of the analysts with the Motley Fool Rule Breakers newsletter service, I'm obsessed with exit strategies. To me, selling is actually the easiest part of the process. Why? Well, because while I may spend just hours researching a buy, I spend every waking moment after that wondering when I should sell. It may take weeks, months, or maybe even several years, but I never want to be too far away if a stock should ever disappoint me.

I'm guessing you probably thought stock newsletters were about generating buying ideas. They are. However, even Kenny Rogers sang about knowing when to fold 'em. And in a high-growth newsletter where our investing horizon is typically many years long, we're never too proud to cut the cord if the fundamentals are crumbling.

Since the newsletter's inception in 2004, there have been six sell recommendations. Great Wolf Resorts (Nasdaq: WOLF  ) , Bankrate (Nasdaq: RATE  ) , Overstock.com (Nasdaq: OSTK  ) , BioSante Pharmaceuticals (AMEX: BPA  ) , XM Satellite Radio (Nasdaq: XMSR  ) , and Aspect Medical Systems (Nasdaq: ASPM  ) have all been given their walking papers.

What the stocks have done after we moved on is pretty encouraging.

Sell Date

Sell Price

Recent Price

Change Since Sell

Aspect Medical

12/20/06

$20.42

$15.48

(24.2%)

XM Satellite Radio

11/15/06

$14.85

$13.61

(8.4%)

Bankrate

4/19/06

$46.96

$38.32

(18.4%)

Overstock.com

2/15/06

$25.23

$17.55

(30.4%)

BioSante

12/21/05

$3.72

$4.41

18.6%

Great Wolf Resorts

7/28/05

$13.65

$13.58

(0.5%)

All but one have underperformed the market and are trading lower today.

The whys and wherefores
Growth stocks are often story stocks, and these early departures certainly have stories to tell. Great Wolf stumbled in its first summer season as a public company. A clinical trial delay stung BioSante. XM lost ground to its faster-growing rival, Sirius Satellite Radio (Nasdaq: SIRI  ) .

However, every departure has one thing in common: The reasons we bought in no longer applied. If you buy a fast-growing online retailer, you expect it to grow. If you snap up the leader in interest-rate monitoring, you expect it to have better sense than to dilute investors with a needless secondary offering after a heady run.

Awaken your inner seller
If you walk away with anything out of this article, it should be this: Knowing when to sell is easy once you know why you bought in the first place.

Do this for me over the weekend: Jot down every stock you own. All of them. Next to each one, write the reason or reasons you were attracted to the investment. It doesn't have to be an epic. Bullet points will do just fine.

Keep that sheet handy. Laminate it if you want to. Just keep it close so you can always check back on volatile days that test your resolve. How bad is that earnings report? How out of whack has the valuation gotten? Is a competitor doing something that can disrupt the industry?

See, selling isn't about the assessing the future. It's about nailing the past. It's about staying close to your original investing strategy. Once you've got that down pat, you will be amazed at how easy it is to sell.

But perhaps my timing is awkward. I'm here trying to teach you how to sell your stocks on the same day that the new issue of Rule Breakers goes out to all active paying and free-trial subscribers. Tonight will be a time to study the new issue and dig deep into the two latest recommendations. Will you buy?

In that sense, maybe my timing couldn't be any better. If you are about to make your next stock-purchase decision later today, now is the time to start by following my advice.

Grab that sheet of paper. Jot those thoughts down. Don't worry about the laminate. Just make sure you are in complete control when you purchase, because the art of selling has always been about understanding the art of buying.

Check out the winners and losers that make up the interactive newsletter service for 30 days with a free trial subscription that will keep you updated on our buy and sell recommendations -- including today's new selections.

Longtime Fool contributor Rick Munarriz has been writing the "Early Adopter Roundup" column since the newsletter's inception in the fall of 2004. He does not own shares in any of the companies in this article. The Fool has a disclosure policy.


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