Should I sell my stocks when the stock hits a 52-week high in order to "Buy Low, Sell High"?

Question

I have a 10 stock portfolio and considering market conditions that are on the rise when this question in being asked, a few of them did hit their 52-week high price.

I would like to call myself a long term investor and I do not like to trade so much. If I take "Buy low sell high" as gospel then this is in my opinion a good selling position.

On one hand, I think I should lock my profit because stocks don't hit a 52-week high every day, but on the other hand, there is nothing wrong with the company and it is very well positioned to go up even further.

Any suggestions?

Answer 1

Though it seems unintuitive, you should rationally ignore the past performance of this stock (including the fact that it's at its 52-week high) and focus exclusively on factors that you believe should affect it moving forward. If you think it's going to go up even further, more than the return on your other options for where to put the money, keep the stock. If you think it's peaked and will be going down, now's a good time to sell.

To put it another way: if you didn't already have this stock, would you buy it today?
Your choice is just about the same: you can choose between a sum of cash equal to the present market value of the shares, OR the shares. Which do you think is worth more?

You also mentioned that you only have 10 stocks in the portfolio. Some are probably a larger percentage than others, and this distribution may be different than what you want in your portfolio. It may be time to do some rebalancing, which could involve selling some shares where your position is too large (as a % of your portfolio) and using the proceeds toward one or more categories you're not as invested in as you would like to be. This might be a good opportunity to increase the diversity in your portfolio.

If part of your reward and motivation for trading is emotional, not purely financial, you could sell now, mark it as a "win," and move on to another opportunity. Trading based on emotions is not likely to optimize your future balance, but not everybody is into trading or money for money's sake. What's going to help you sleep better at night and help boost your quality of life? If holding the stock will make you stress and regret a missed opportunity if it goes down, and selling it will make you feel happy and confident even if it still goes up more (e.g. you interpret that as further confirming that you made a good pick in the first place), you might decide that the risk of suboptimal financial returns (from emotion-based trading) is acceptable.

As CQM points out, you could also set a trailing sell order to activate only when the stock is a certain percentage or dollar amount below whatever it peaks at between the time you set the order and the time it fires/expires; the activation price will rise with the stock and hold as it falls.

Answer 2

I bought 1000 shares of Apple, when it was $5. And yet, while the purchase was smart, the sales were the dumbest of my life. "You can't go wrong taking a profit" "When a stock doubles sell half and let it ride", etc. It doubled, I sold half, a $5000 gain. Then it split, and kept going up. Long story short, I took gains of just under $50,000 as it rose, and had 100 shares left for the 7 to 1 split. The 700 shares are worth $79,000. But, if I simply let it ride, 1000 shares split to 14,000. $1.4M. I suppose turning $5,000 into $130K is cause for celebration, but it will stay with me as the lost $1.3M opportunity.

Look at the chart and tell me the value of selling stocks at their 52 week high. Yet, if you chart stocks heading into the dotcom bubble, you'll see a history of $100 stocks crashing to single digits. But none of them sported a P/E of 12.

Answer 3

Buy low, sell high.

I think a lot of people apply that advice wrongly. Instead of using this as advice about when to buy and when to sell, you should use it as advice about when not to buy and when not to sell.

Don't buy when P/Es cannot support the current stock price. Don't sell when stocks have already fallen due to a market panic. Don't follow the herd or you will get trampled when they reverse direction in a panic.

If you are smart enough to sell ahead of the panics, more power to you, but you should be using more than a 52-week high on a graph to make that decision.

Answer 4

Obviously a stock that's hit a high is profit waiting to be taken, be safe, take the money, Sell Sell Sell!!

Ah.. but wait, they say "run your winners, cut your losers", so here this stock is a winner... keep on to it, Hold Hold Hold!!!!!

Of course, if you're holding, then you think it's going to return even higher.... Buy Buy Buy!!!!

So, hope that's clears things up for you - Sell, Hold, or maybe Buy :-)

A more serious answer is not ever to worry about past performance, if its gone past a reasonable valuation then consider selling, but never care about selling out just because its reached some arbitrary share price. If you are worried about losses, you might like to set a trailing stop and sell if it drops, but if you're a LTBH type person, just keep it until you feel it is overvalued compared to its fundamentals.

Answer 5

I primarily intend to add on to WBT's answer, which is good. It has been shown that "momentum" is a very real, tangible factor in stock returns. Stocks that have done well tend to keep doing well; stocks that are doing poorly tend to keep doing poorly. For a long-term value investor, of course fundamental valuation should be your first thing to look at - but as long as you're comfortable with the company's price as compared to its value, you should absolutely hang onto it if it's been going up. The old saying on Wall Street is "Cut your losses, and let your winners ride." As WBT said, there may be some tangible emotional benefit to marking your win while you're ahead and not risking that it tanks, but I'd say the odds are in your favor. If an undervalued company starts rising in stock price, maybe that means the market is starting to recognize it for the deal it is. Hang onto it and enjoy the fruits of your research.

Answer 6

You should sell all your stock immediately and reinvest the money in index funds. As of right now you're competing against prop trading shops, multinational banks, and the like, who probably know a teensy bit more about that particular stock than you do.

I'm sorry, any other advice is missing the point that you shouldn't be picking stocks in the first place.

Answer 7

One possibility is to lock in gains by selling, where a selling price can attempt to be optimized by initiating a trailing stop loss order. You'll have to look at the pros and cons of that kind of order to see if it is right for you.

Another possibility is to begin hedging with options contracts, if that security is optionable. Puts with the appropriate delta will cost over time against future gains in the stock's price, but will protect your wealth if the stock price falls from this high point.

These possibilities depend on what your investment goals are. For instance, if you are buying no matter what price because you like the forward guidance of the company, then it changes your capital growth and preservation decisions.

Answer 8

Here in Australia a stock price is usually highest just before a dividend and lowest just after a dividend. If you buy just after the dividend then you missed out until next time. There may be many other reasons why a stock may exhibit yearly, quarterly and monthly cycles.

Answer 9

You asked for advice, so I'll offer it. Trying to time the market is not a great strategy unless you're sitting in front of a Bloomberg terminal all the time. Another person answering your question suggests the use of index funds; he's likely to be right.

Look up "asset allocation." What you want to do is decide that you want your portfolio to contain, for example:

30% - 35% growth stocks
25% - 30% growth and income stocks
30% - 35% stocks from markets outside your own country
10% - 15% bonds

If one of your stock holdings goes up far enough that you're out of your target asset allocation ranges, sell some of it and buy something in another asset class,s so you're back in balance. That way you lock in some profit when things go up, without losing access to potential future profits. The same applies if something goes down; you buy more of that asset class by selling others.

This has worked really well for me for 30+ years.

Answer 10

Insofar as a 52 week high indicates a peak, yes. However, the truth is that "buying low and selling high" means "Act a Fool!"

You see, when you buy low, you are perceived to be buying total garbage - throwing your money away and conversely when selling high you are perceived to be a total idiot - selling a winner. That's how people will see you when you are in fact buying low and/or selling high, right? It's those people that (mis)value the asset, right? An asset is worth what the people will pay for it, right?

...And don't forget that holding a loser is MUCH easier than holding a winner.

Good luck!

Answer 11

Selling as well as buying a stock are part science and part art form. I remember once selling a stock at its 52 week high too. That particular stock "quadrupled" in value over the next 52 weeks. Mind you I made 50% ROI on the stock but my point is that none of us have a crystal ball on whether a particular stock will ever stop or start going up or stop or start going down. If someone had those answers they wouldn't be telling you they would be practicing them to make more money! Make up your mind what you want to make and stick by your decisions. Bulls make money when stocks go up and Bears make money when they go down but pigs don't make money. -RobF

Answer 12

Yeah it is the best way to invest and enjoy everything about the market . Warren buffet gave us this advice and it is better then gold . ( platinum ) Buying the stocks low and selling them every chance possible at their highest is sure thing .

Answer 13

As per the chart pattern when ever a stock breaks its 52 week high.

1. It lands into free zone which is depends also on the positive volume but most of the stocks give you at least 5-10% more after breaking the 52 week high with good positive volume.
2. best strategy is to keep 60-40% ratio sell off your lion share when your stock as reached such points and play with other 30% with a 52 week high as stop loss.

This information may differ for penny stocks,small caps and mid cap stocks