Traders, Investors Differ On Timing Of Stock Sales

Would you invest some money if you could make a 25 percent profit within about a week?

Easy, right. Who wouldn’t?

What if you could sell your investment and make 25 percent profit now, or hold on in the hope of greater gains? But if you hold on, you might lose.

“That’s one of the great milliondollar questions in investing,” said Tom Post, investment adviser with Independence Advisers Inc., Birmingham, Mich. “Knowing when to buy is much easier than (knowing) when to sell.”

Take Chrysler Corp., for example.

On April 12, the day Las Vegas business mogul Kirk Kerkorian announced his plan to take over the automaker, its stock jumped $9.50 a share, a 24 percent increase in a single day.

That same day, however, some analysts were predicting the stock could climb much higher, to $80 or even $100 a share.

That hasn’t happened.

So, when do you sell?

Money managers say the best way to answer that is to first decide whether you’re an investor or a trader.

A trader buys stock because he or she thinks it’s being offered at a good price. When it reaches a better price they sell it.

An investor buys a stock for the long haul - at least five years - and hangs on. If the stock increases in value, great. Investors still hang on for even greater gains.

Traders believe they can time the market. Through various means, from sophisticated analysis to tea leaves, they believe they can tell the best times to buy and sell shares.

Most timers miss the mark.

For the rest of us investors, here are three ways to answer the question of when to sell:

Have a price in mind, and when the stock reaches it, sell.

Have a date in mind, and when you near the time you need the money, sell.

A third strategy is a combination of the previous two.

If you’ve invested for the longterm, and your stock takes a dramatic jump, consider selling half.

This way, you realize your gains. If the stock falls, you still feel good because at least you grabbed some of the profit.