CHAPTER IX. WHEN TO SELL STOCKS
You should sell stocks when the market price is too high. That is a general rule, but it is necessary for you to study all the influences affecting stock prices to be able to decide more accurately when you should sell your stocks. We give you, in future chapters, much more information on judging the markets.
Another general rule, is to sell stocks when nearly everybody is buying them. It is a well known fact that the great majority of people buy stocks near the top and sell near the bottom. Naturally when everybody is optimistic, stocks will sell up high, but sooner or later they will come down again, and when everything looks very promising is a good time to sell. It is better to lose a little of the profit that you might have made by holding on longer than not to be on the safe side. The man who tries to sell at the top nearly always loses, because stocks seldom sell as high as it is predicted they will, or, in other words, the prediction of higher prices is advanced more rapidly than the prices.
We remember reading in 1916, when U. S. Steel sold up around $136 a share, a prediction that it was going to sell up to $1000 a share. Probably many people who read such news items consider them seriously. Of course, that was a most exaggerated prediction, but during the extreme activity of a bull market, it seems that nearly everybody is talking in exaggerated terms of optimism. That is why most traders seldom ever take their profits in a bull market. They wait until stock prices start to come down, and then they are likely to think there will be rallies, and keep on waiting until they lose all their profits.
On the other hand, some people make the mistake of selling too soon. Just because your purchase shows a liberal profit is no reason why you should sell. The stock may have been very cheap when you bought it. In 1920, Peoples Gas sold below $30. Those who bought it then were able to double their money by the close of 1921, and many sold out and took their profits. Of course, if they invested the proceeds in other stocks that were just starting upward, they may not have lost anything, but there was no particular reason for selling Peoples Gas at that time. The public utilities generally were coming into their own, and nearly all of them were regarded by economic students as having unusual opportunities for profit.
Then again, it is not always a mistake to sell a stock in order to get funds to put into something else that seems more promising, even though the stock you sell is likely to go much higher.
It is very important that you should try to sell your stocks at the right time. That is the main thing to keep in mind and it is better to sell too soon than too late. Don't be too greedy and hold on for a big profit. Read Chapter XXIV. on the "Possibilities of Profit."