LEVEL 5 SUMMARY: When to Buy and Sell Your Stocks

This is a summary of the four lessons that make up Level 5: When to Buy and Sell Your Stocksof our course: How to Invest in Stocks: Learn How to Buy Stocks, Make Money, and Avoid Mistakes

We covered a lot in Level 5, including: 

  • Why “buy and hold” can be a dangerous strategy, and why “buy and homework” is much better
  • A 5-point checklist of when to buy your stocks
  • A 10-point checklist of when to sell your stocks
  • The best brokers, account types, and order types

Let’s walk through a brief summary of the major takeaways from each lesson.

NOTE: You can click on any section title to read the full lesson:

Lesson 31: Why “Buy and Hold” Is a Dangerous Strategy

If we had to summarize this lesson into one simple sentence, it might be this:

You need a good reason to buy a stock and a good reason to sell a stock.

It’s that simple.

Jumping in and out of stocks without a good reason is a losing strategy. And blindly holding onto investments forever is also a losing strategy.

Instead, you should constantly be evaluating whether your portfolio still meets your original goals or whether there are better choices available.

Below are the major takeaways from today. In the next two lessons, we’ll cover exactly what are “good reasons” to buy and sell your stocks.

  • Buy and hold is a passive investment strategy for which an investor buys stocks and holds them for a long period regardless of fluctuations in the market.
  • We feel “buy and hold” encourages investors to try and guess how a company will perform over the next decade (an impossible task) and then ignore new information.
  • We don’t think think Warren Buffett is suggesting you SHOULD hold forever. We think he’s saying you should invest in a company that’s so good that you WANT to hold forever.
  • Rather than “buy and hold”, we like Jim Cramer’s phrase, “buy and homework.”
  • Cramer believes that investors must be prepared to make strategic decisions and react to changes in the market or unexpected fluctuations in stock performance.
  • Don’t pick any hard holding period and blindly stick by it. Instead, constantly ask yourself, “Are these the best possible stocks I could own given my investment goals?”
  • We believe you should rebalance your portfolio often, relying on the latest information to make sure you’re always holding the best stocks for your goals.
  • Jumping in and out of stocks without a good reason is a losing strategy. And blindly holding onto investments forever is also a losing strategy.
  • Smart investors rely on stock investment newsletters, financial advisors, investment clubs, or other methods of getting high-quality, up-to-date analysis on the best stocks without having to dedicate dozens of hours each week to research.

Lesson 32: When Should You Buy a Stock? (Plus Handout: “Stock Buyer’s Checklist”)

We covered a 5-point checklist for buying a new stock (plus a handout). 

You should be able to confidently answer, “Yes”, to these five questions before buying something new in your portfolio:

  1. Am I only investing money I won’t need for the next 5-10 years?
  2. Is this the best possible stock for my investment strategy?
  3. Do I have a good way to follow this stock in the future?
  4. Do I have a way to tell if my thesis is playing out correctly?
  5. Have I checked that this stock fits with my overall portfolio?

In our next lesson, let’s dig into when you should sell a stock from your portfolio.

Lesson 33: When Should You Sell a Stock? (Plus Handout: “Stock Seller’s Checklist”)

We covered a 10-point checklist for selling a stock (plus a handout).

Many of the reasons were related to spotting flaws in your stocks while others were related to managing your portfolio, personal finances, and taxes.

When deciding if you should sell a stock, you should be able to confidently answer, “Yes”, to ANY of these 10 questions:

  1. Does my original investment thesis now appear wrong?
  2. Is there a clearly better alternative to serve my investment goals?
  3. Does the stock no longer fit my investment strategy / goals?
  4. Does financial performance seem to be falling apart?
  5. Does management appear incapable or incompetent?
  6. Does the stock seem extremely overvalued?
  7. Are there signs of serious financial fraud / corruption / criminal activity?
  8. Has the stock grown to make up too much of my portfolio weight?
  9. Do I have an unexpected financial need for the money?
  10. Do I want to take a capital loss to offset a capital gain?

Lesson 34: How to Buy and Sell Your Stocks (Best Brokers, Order Types, and More)

We covered common questions about the best brokers, account types, and order types for investors. 

Your personal situation will greatly influence your decisions, and there’s no “one size fits all” for all investors. 

Here are the most important takeaways from today’s lesson:

  • In our experience, picking the best broker comes down to low trading commissions, good website and mobile app, and helpful customer service.
  • Trading commissions are especially important if you’re starting off with a relatively small amount of investment money. In that case, trading fees can eat into your profits.
  • Whatever brokerage you go with should have a good website and mobile app.
  • The U.S. stock market is open Monday through Friday from 9:30am to 4:00pm EST (excluding holidays).
  • You can place trades anytime you want (even if the market is closed), and they will sit, ready to execute, once the market opens.
  • In general, frequent trades that will result in booking profits in under a year (qualifying as a short-term capital gain) are best traded in tax-advantaged accounts, such as IRAs.
  • If you’re trading slower, more long-term strategies (for example, deep value investing), you may want to place those trades in a regular taxable brokerage account.
  • A market order means you’re willing to buy or sell your desired quantity of shares at the next available market price.
  • A limit order will only execute when the stock reaches the price you specify, or better.
  • The bottom line is if you decide to use a limit order, make sure not to be too strict with your limit price if you really want the order to execute.

Todd Lincoln


Passionate stock market investor with deep experience trading small cap, dividend, and growth stocks.

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