3 Reasons Why You Might Be Wise to Consider Selling Some of the Holdings in Your Portfolio

Here are three reasons why you might want to consider selling one of your holdings, including a change at the top, such as the one that recently took place at Canadian National Railway (TSX:CNR)(NYSE:CNI).

In a perfect world, you’re never going to be forced to sell any of your investments, because you know the company is just too good and your investment is just too valuable to part ways with.

But at the same time, while we all strive for those “perfect” scenarios, the reality is life — and investing — are far from perfect, and there are inevitably going to be circumstances where you are better off parting ways with an investment than holding it into eternity.

Here are three circumstances where you might be better off being a seller.

Your stock has reached your price target

When making an investment in the stock of a publicly traded company, it’s always best to go in with a game plan ahead of time. Not only does that mean taking a look at what you are going to do if things don’t work out — like, for example, entering a stop-loss on your position — but it also means you need to account for what you are going to do if things do go your way.

When you make an investment, you should have an idea of what you think the company is worth. This is your estimate of “fair value” and can also act as your “target price,” or the price that you think the security will trade at in the future.

It’s called a target price, because once you do hit that threshold — whether it’s in a few months or even if it’s a few years — you’ve done your job, and it may be time to move on to your next venture.

Your stock has just experienced a dramatic run up in its share price

This point is admittedly a bit more debatable, as there are those out there who will argue that you will do yourself more harm than good in over-trading, or trading more than you should.

If you’re one of the people who subscribe to the more straightforward “buy-and-hold” theory, this point may not be for you.

But if you identify yourself as a more of an “active” trader, and your shares have experienced an unexpected or unprecedented rise in their value, you may want to consider at least trimming some of those newfound profits off the top and selling some, if not all, of your position.

Then you can use those profits to fund your next greatest idea or alternatively reinvest them back into the same company if, down the road, the stock experiences a bit of a pullback.

There’s been a change in the company’s industry, its fundamentals, or its management

There are quite a few things to be on the lookout for here.

One could be a major shift to your company’s industry, such as the threat of e-commerce to traditional brick-and-mortar retailers like Walmart Inc. (NYSE:WMT) and Bed Bath & Beyond Inc. (NASDAQ:BBBY), or it could be technological advancement, like self-driving cars and how that could potentially impact auto parts suppliers like Magna International Inc. (TSX: MG)(NYSE: MGA) or Martinrea International Inc. (TSX: MRE).

Another factor to be on the lookout for is a change in the underlying fundamentals of a company. This could be a decline in sales or profits — particularly troublesome if it appears that management doesn’t have a plan in place to address the issue.

Finally, you’ll also want to be on the lookout for any significant changes in the company’s management.

For example, earlier this year Canadian National Railway (TSX: CNR)(NYSE: CNI) announced that its CEO Luc Jobin would be stepping down to be replaced by interim-CEO Jean Jacques Ruest, who has been with the company for the last 22 years.

Sometimes a change is needed at the top, but at the same time, implementing new change usually takes time, and turnover in the C-suites certainly warrants extra attention if it happens to be taking place at the offices of one of your portfolio’s holdings.

Fool contributor Jason Phillips has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway and Magna are recommendations of Stock Advisor Canada.

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