When to sell a stock?
Easy. When you've either made some money on it, or you don't want to lose any more.
The concept is simple: Let your winnings run, and cut your losses early.
It's the execution that's tricky.
Plenty of market veterans have rules, formulas and even superstitions, when it comes to when to sell a stock. A legendary Chicago bond trader told me years ago his trick. If he wasn't making money by 9 am, he'd sell and go home. It's not really practical advice for the average stock investor in a 401(k), I admit, but record highs in the Dow Jones Industrial Average and the Standard and Poor's 500 are as good a time as any for a hard look at the art of selling.
1) There's the 25 percent rule.
"Most stocks that have great earnings and sales will run up historically on average, about 20 - 25% before they begin pulling back in price," says Amy Smith of Investor's Business Daily. "So you might want to start thinking about locking in some profits at 20-25%."
2) Sometimes it's best not to watch the stock prices, but the company's earnings trajectory.
Ned Riley, Chairman of Riley Asset Management, says when earnings growth begins to slow, the stock often follows.
"The first thing I tell people is to watch the momentum and earnings year over year. If there is a deterioration in the growth rate of a company's earnings, then one should be wary."
3) Don't buy the highs.
The last stages of a bull market can often be the most lucrative, but it's always better to take profits after a long run, than get into the last moments. And make no mistake, this bull is long in the tooth.
"The market has been going for one year, two years, three years, four years, it's a great bull market," says Carter Worth, Chief Market Technician at Oppenheimer Asset Management. "But history shows that when you have very euphoric bull phases, they give way to corrections. It's a normal thing. From a November low, we're up about 20 percent. And at this point, this is exactly where a normative pullback or correction or pause occurs."
4) And then there is this, legendary advice from the world's most famous investor, Warren Buffett.
"You want to be greedy when others are fearful and fearful when others are greedy."
Check out CNNMoney's Fear and Greed Index to see just how fearful or greedy this market has become.
For more on the art of the sale, watch "Your Bottom Line" Saturday at 9:30am eastern on CNN.
Pivotal Research Group analyst Brian Wieser was the first analyst to assign a "sell" rating on Facebook back in May, when the social media day giant made its big (botched) public debut.
Later that month, as Facebook's stock declined and fell below his then price target of $30 per share, Wieser changed his rating to "hold."
But given the recent slide in Facebook's shares ahead of the company's first earnings report Thursday MOREHibah Yousuf - Jul 26, 2012 11:21 AM ET
|Unstereotyped: Meet the white valedictorian of a historically black college|
|The company behind 'American Idol' has filed for bankruptcy|
|New milestone for bull market: 2nd longest ever|
|WPP CEO Martin Sorrell made 1,444 times his average employees pay in 2015|
|ExxonMobil profits crash to lowest level since 1999|