Yes, We Sold Your Stock

Buying a stock is easy, and you don't need the E*Trade baby to prove it. Selling, on the other hand, is the real challenge.

Let's face it. As investors, we spend far more time researching stocks to buy than we do weighing the eventual sale. Selling is a shareholder's photo finish. Did you win by a nose or lose by a country mile? It's all in the sale.

But selling is never easy, is it? It's too easy to get attached to your -- and, until you unload, they are yours -- companies. That attachment can blur judgment, particularly since selling is either a moment of jubilation as you cash out on a winner or, more likely, an admission that you were wrong.

Sure, you're a capable stock picker. But how adept are you at unpicking them?

XM marks the spot
As one of the analysts with the Motley Fool Rule Breakers investment service, I'm obsessed with exit strategies. I find selling the easiest part of the investing process. I may spend hours pouring over the due diligence required to drum up a recommendation, but then I spend every moment after that wondering whether it's time to sell.

For example, two years ago, I recommended XM Satellite Radio (Nasdaq: XMSR). I loved the industry. I subscribed -- and continue to subscribe -- to both XM and Sirius Satellite Radio (Nasdaq: SIRI). Both companies were losing money, but they were growing quickly, and XM was the first mover and the largest player.

Unfortunately, during every subsequent quarter, Sirius gained on XM. Not only that, but the industry was also starting to evolve. XM and Sirius used to be the antidote to terrestrial radio, but new cars were being sold with dashboard input jacks for Apple (Nasdaq: AAPL) and SanDisk (Nasdaq: SNDK) digital music players. Don't even get me started on cars with hard drives that now store entire CD collections, MP3s, and podcasts.

The industry changed, and so did my recommendation.

Your stocks never stand still
Companies can change in many different ways. Earnings growth can taper off, as it did for Great Wolf Resorts (Nasdaq: WOLF). Someone can build a better mousetrap. Management that once seemed brilliant can evolve a streak of incompetence as we saw with Overstock.com (Nasdaq: OSTK).

Anything that changes a stock's story needs to be weighed as a potential sell catalyst. If the story changes, so does your evaluation of the company. It's as easy as that.

So why aren't you selling more?

It's easy to ignore the deterioration, and it's easy to dismiss stellar gains as the norm. But regular attention to a stock's story and a clear-eyed evaluation of the company are the things that separate successful investors from the ones muttering that they should've sold when they had the chance.

A history of sell recommendations
Most people approach investment advisory services as a source for great stock ideas, but a service can be a great source of sell ideas, too. Rule Breakers has been around for almost four years, but along the way we've had nearly a dozen sell recommendations -- and that doesn't include stocks that were ultimately acquired at healthy premiums or the online financial rates publisher Bankrate (Nasdaq: RATE), which we sold for a hefty gain only to buy it back a few months later at a lower price point.

In these volatile times, you may even approach sell recommendations as candidates to short. Let's look at the 10 sell recommendations issued by the investing service, all of which came from attention to changing conditions:

Seven of the 10 former recommendations have posted negative returns, with the average sell pick trading 18% lower than when we recommended the sell.

Now, most advisors would be embarrassed about admitting so many mistakes. But the good news is that our average return in the service is more than 13% per pick -- well ahead of the S&P 500.

Every new monthly issue of Motley Fool Rule Breakers offers an opportunity to brush up on two new recommendations, which should always be the driving motivation in taking the time -- and, let's face it, money -- to subscribe to a universe-widening research service. However, you're cheating yourself if you don't lean on the collective due diligence of an online research community to drum up the courage to cut ties with stocks that are straying from their paths of enrichment.

You're a skilled buyer of stocks. Isn't it time you became equally adept at pulling the ripcord?

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 top picks.

Longtime Fool contributor Rick Munarriz keeps thinking of that Kenny Rogers song, about the gambler who knows when to walk away and when to run. Rick does not own shares in any of the companies in this article. Apple is a Motley Fool Stock Advisor recommendation. The Fool has a disclosure policy.