What the Masters Would Say
Knowing when to sell is widely considered the hardest decision in investing. Most investors spend enormous energy researching what to buy but have no systematic framework for when to exit. This asymmetry leads to two equally destructive patterns: holding losers too long out of hope, and selling winners too early out of fear.
Philip Fisher solved this problem with the clearest selling discipline ever articulated, and it has stood the test of time for over sixty years. Fisher identified only three legitimate reasons to sell a stock, and none of them involve the stock price going up or down.
The first reason to sell is when you discover that you made a mistake in your original analysis. The business is not what you thought it was. The competitive advantage does not exist, the management is not as capable as you believed, or the market opportunity is smaller than you estimated. This is not a failure -- it is intellectual honesty, and it is far better to admit a mistake and move on than to hold and hope.
The second reason to sell is when the company no longer meets the criteria that made you buy it in the first place. The business has fundamentally changed. Perhaps a competitor has disrupted its market, regulation has impaired its economics, or management has made strategic errors that have permanently weakened its competitive position. Warren Buffett summarizes this as "when the facts change, change your mind."
The third reason to sell is when you find a significantly better opportunity and need to free up capital. This reason requires the highest bar because it involves the risk of being wrong about both the sell decision and the new purchase.
Howard Marks adds an important fourth dimension: sell when the price has risen so far above intrinsic value that even optimistic future scenarios cannot justify it. This is different from selling because a stock has risen -- it is selling because the risk-reward has become unfavorable based on fundamental analysis.
Here is a comprehensive sell checklist to use for every position:
Your Action Plan
2. Has the competitive position deteriorated? Is the company losing market share, facing a disruptive competitor, or experiencing margin compression that is structural rather than cyclical?
3. Has management changed for the worse? Is capital allocation deteriorating? Is the company making acquisitions that destroy value or taking on excessive debt?
4. Has the valuation become genuinely irrational? This does not mean "expensive" -- many great businesses deserve premium valuations. It means the price implies growth rates or margins that are virtually impossible to achieve.
5. Have you found a demonstrably superior investment that justifies the transaction costs and tax implications of switching?
The Bottom Line
If the answer to all five questions is no, the correct action is to hold. Doing nothing is one of the most valuable actions in investing.
Citation Traceability
- Canonical URL: https://keeprule.com/en/scenarios/how-to-know-when-to-sell-stock
- Language Served: en (requested: en)
- Last Updated: 2026-02-12
Want Deeper Analysis?
Copy this scenario as an AI prompt. Paste it into ChatGPT, Claude, or Gemini for personalized analysis
Principles That Apply
"When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."Read Full Principle →
"The essence of investment management is the management of risks, not the management of returns."Read Full Principle →
"Sell only when: 1) You made a mistake in original analysis, 2) The company no longer meets the fifteen points, or 3) A clearly better opportunity exists."Read Full Principle →
Explore More Scenarios
Browse all 30 investing dilemmas and discover what legendary investors would do in each situation.
View All Scenarios