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Should I Sell My Stock When It Reaches An All-Time High?

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The stock that you had bought six months ago has gone up 20% and is now trading at an all-time high. This is a dream scenario for many investors, and they may decide that it is wise to sell now.

However, in reality, selling may be a crucial mistake. If you have done your homework and realise the real long-term potential of the company, then a 20% gain may not be the likely long-term gain of the stock.

Market anxiety can affect investors of all stripes. However, learning to control your emotions and thinking rationally before every decision can go a long way for your financial health. As such, here are three general reasons not to sell your stock at all-time highs.

The stock still has room for growth

Stocks tend to generally rise over time, provided they are fundamentally strong. This is because of the growth of the underlying company behind the ticker. As such, along the way, stocks might constantly hit new highs.

Investors who get cold feet just because a company is at an all-time high may not be able to reap the returns of companies that can keep breaking new records.

Having said that, some price jumps may not be warranted and investors need to be able to distinguish between justified share price increases and those that are not.

Difficulty timing the market

If you think that the company is currently slightly overpriced after reaching an all-time high but still believe that the stock has a long runway for growth in the future, you may wish to sell and buy back at a lower price in the future.

Unfortunately, history has shown that investors have a very poor record of timing the market. Most investors, after closing their position, may never re-enter the stock as the stock has either appreciated further or they wait too long to purchase the stock again.

Frictional cost

Moving in and out of the stock market incurs mounting commission fees that brokerages charge. This may seem small to the long-term investor, but it can add up if investors are constantly moving in and out of the stock market.

On top of not being able to time the market well, investors need to overcome the additional barrier of these costs that can further dampen their returns.

The Foolish bottom line

When your stock has hit an all-time high, it may be extremely tempting to sell and to secure your profits.

However, holding on to your shares may be the better option due to the general upward nature of stocks. Investors need to ensure that they make each investment decision based on rational thinking, rather than through emotions.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.