A Better Way to Sell Your Stocks?

Many people believe that dollar-cost averaging is a great way to put money into the stock market. But if you think it's time to sell, what's the best way to get your money back out?

Although I'm not convinced that dollar-cost averaging is always the best solution, it can certainly serve you well in some situations. Imagine that you want to own $6,000 worth of Home Surgery Kits (Ticker: OUCHH), but you're having trouble pulling the trigger. You think maybe it's a little overvalued, and worry that it might go down a little in the near future. But you don't want to miss out on gains, and you think there's a good chance it will keep going up for quite a while.

In such a case, you could divide your $6,000 into, say, three parts, and buy $2,000 of the stock now, $2,000 in a month or two, and another $2,000 after that. That way, you'll at least own some of the company, and if it goes up in price, you'll have bought some at the lower price. And if it goes down, you'll be able to buy some at a lower price. See? Not so crazy.

Selling in pieces
You might want to use a similar strategy to get out of a stock, too. For example, if you're sitting on a healthy gain and you don't want to sell in case the stock keeps surging, but you're afraid you'll lose a bundle if the stock retreats, you could decide to sell half or a third of your position now. That way, you pocket a profit right now, and you can leave the rest invested or sell another third or half down the road.

You might miss out on some gains, yes, but you might also miss out on some losses. And no matter what happens, you'll be sure to have gotten something out of your investment.

What to sell
So which stocks might you want to sell right now? With the huge gains that many stocks have seen lately, some investors believe that they may be starting to get overvalued. Take a look at these stocks that combine big recent gains, high valuations, and negative outlooks from our Motley Fool CAPS community:

Data: Motley Fool CAPS.

Keep in mind
Of course, you don't want to sell stocks like the ones above without doing some more digging and thinking. Some may have gotten well ahead of themselves, yes. Those might be good ones to sell, but on the other hand, it can be hard to really know when a stock is overvalued. Some stocks, such as Amazon.com, have foiled doubters for many years, staying seemingly overvalued for long periods and then rising even higher. (This doesn't mean they can't fall.)

Other seemingly overblown companies might still be worth hanging on to. For example, a stock might have doubled in the past year and still be a bargain, if it has yet to catch up to its fair value.

If you hold some stocks that you think you'd be better off selling (because, remember, you should have your money invested in your best ideas), then sell the clunkers. If you're convinced that some of your stocks have stellar growth ahead of them, then hang on. But if you're besieged by nagging doubts and are waffling, selling part of your holding now can be the best middle ground you can find.