The Best Way to Sell Your Stocks
The Orders, Methods, and Numbers Behind the Sale
So the time has come for you to unload that investment. Regardless of whether it’s a dud, a stud, or hitting the ground with a thud, selling stock breaks down to a simple procedure that need not intimidate the neophyte investor. In fact, the modern wrinkle of robot investing makes selling a stock about as complicated as streaming songs on a smartphone. And if you’re more the flesh-and-blood type, working with a trusted financial advisor can be equally stress-free.
Here are some common ways to sell a stock, with added background on reaching the big decision.
Orders Are Orders
The most basic way to sell a stock comes through what’s called a sell order. The main types of sales-related orders include a market order (selling immediately at the current market price), a limit order (which names a minimally acceptable sales price) and a stop order (which triggers a sale once a low price threshold is reached).
Using an App
First-time traders are particularly fond of playing the market this way, as investment apps do not require commissions to sell. A good example is Robinhood, a free app for iOS and Android that also employs crowdsourcing so that you can share information with other investors. Trading a stock amounts to three taps. Betterment has also enjoyed success as an app-based way to buy and sell a pre-selected portfolio of stocks.
Working With a Financial Advisor
Assuming that you bought your stock through a financial advisor, you can also sell your stock this way. Financial advisors will typically execute a sell order within 24 hours. Note that in this case, you must either speak directly to your broker or put your request in writing. As Investopedia notes, “Financial institutions will not accept email or voicemail trade requests as they can be easily missed.”
The Untimeliness of Market Timing
Knowing how to sell a stock also implies a very important question: How do you know when it’s time to sell a stock? Sound answers to this question vary, but let’s start with the most frowned-upon technique regarding a stock sale: market timing.
Simply put, market timing rests on the theory that you can successfully buy and sell a stock by predicting its future movements. In some ways, it’s akin to the guesswork of watching interest rates on mortgages and betting on the ideal time to lock in a rate—but with even less precision.
Market timing, most experts contend, is a bet because even in the numerical world of investing, no set of calculations exists that can tell you both the best time to enter and exit a certain holding (that is, when to get in and when to get out). Tea leaves, it turns out, probably work better.
If you hoped to get in at the right time and succeeded, that’s one thing. But insofar as selling, it’s a better idea to set a dollar goal than a clock. It is similar to a sell order, except that it’s informal—like a sticky note reminder as opposed to a binding document. With a dollar goal, you can wait until your $20 stock hits $30 a share, for example, and use that as a selling point, as opposed to forecasting the most opportune time to sell.
A Magic Selling Number: 16.5
This digit has nothing to do with share price, calendar date or secret code from a smoke-filled room on Wall Street. Rather, it pertains to something known as a GAAP forward multiple. Now, let’s break that jargon down: GAAP stands for “generally accepted accounting principles,” a financial standard that public companies use.
If you take the earnings per share of a company as determined by GAAP, and multiply it by 16.5, you now have a target price for your sale. So if Carlozo Motors has earnings per share of $10, your target sell price would be $160.50. Why the number 16.5? It turns out this is based on a 40-year average for equities and has more or less been in the 16.5 ballpark since the late 1800s.
Putting It All Together: Are You Sold?
With all the different ways to buy and sell stock, the barriers to entry for the investment world have never been lower. If you’re worried about the finer points of selling a stock, or when, you can always choose to sit and wait: “buy and hold” is the actual name of an investment strategy favored by the likes of billionaires such as Warren Buffett and Charles Brandes. That’s right: You can hold onto a stock without ever having to sell it. Just don’t sit on the investment sidelines for that long.