Knowing when to sell is a tough thing to figure out.  I think it’s harder than knowing when to buy.  Knowing when to sell a winning stock is tough because on one hand, your gains are only on paper and are meaningless until you ring the register.  On another hand, the upward trend is in your favor and you don’t want to miss out on future gains.  Here are some examples and thoughts on determining when to sell that winning stock.

Sweet Chesapeake

My biggest performer this year has been Chesapeake Energy (CHK).  I accumulated a fairly decent size position in this stock last year and continued to build this year.  However, about a month ago I took about 50% of my position off the table and cashed in my profits.

Since then, the stock is up another $10; today, a new all-time high of over $65 a share!  Am I kicking myself for selling a month ago and not holding on?  I’m not and here’s why…

Taking a Profit Should Never Be Considered A Bad Thing

My profits are safe.  Chesapeake and other natural gas stocks have been in parabolic movements as of late which makes many investors extremely nervous.  A sharp correction in the stock could be ugly.  The money I made on the stock is safe.

I Move In And Out Of Positions In Chunks

It is impossible to know for certain if your timing of a buy or sell is perfect.  Therefore, to protect yourself, I recommend buying and selling your position in chunks.  My default “chunk” is a third of my overall position.  For example, if I like a stock, I will determine what position I want to eventually accumulate in the near term and buy a third of that position.  If the stock moves lower, I’ll pickup another third.  You get the idea.

Well, with Chesapeake, I sold a little more than a third (close to 50%) to take profits.  By keeping a large stake I am able to take advantage of the trend higher continuing.  If the stock went lower (which it didn’t), then my profits are safe.

Do you own Chesapeake Energy?  When do you plan to sell part or all of your position?

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