Stock represents the ownership of a certain percentage or share of a company. You can only buy stock in a company that is publicly held, meaning all members of the public have the ability to purchase its shares. Privately held corporations are owned outright by an individual or group of individuals. Figuring out when to buy and sell stock can be a difficult decision, and there are no clearly established, universally agreed-upon rules when it comes to maximizing profitability in the stock trade. There are, however, some general strategies that can help.

When to Sell Stock

There are two contradictory yet common reasons for selling stock: because the stock has fallen in value, or because the stock has gained in value. When a stock goes down in value, this could potentially be a sign of weakness or inefficiency within a company. In this instance, you will sell your stock because you have lost faith in the company in which you have invested, and you want to prevent any further losses. Even though you sell the stock for less than what you bought it for, the rationale is the stock could fall even lower, and you could lose more. Oppositely, another common time for investors to sell stock is when there is a pronounced gain in the stock's value. In this instance, you want to sell to make a quick profit, before the stock drops in value again. A common time for investors to sell--according to Capitalism Magazine, at CapMag.com--is when a stock has quadrupled value. However, many top investors, such as Warren Buffett, claim you should never sell stock. The rationale here is the market will always eventually rebound, and your stock investments will become profitable in the long run.

When to Buy Stock

Determining when to buy stock--if you want to maximize your chances of being profitable--requires lots of research and analysis. According to Library.ThinkQuest.org, there are two general methods of analysis you can perform to help decide if the time is right for purchasing stock: technical analysis and fundamental analysis. With the former, you study charts and figure out company trends; with the latter, you take into account the company's management situation and their current market position. Both types of analysis will help give you a prediction of how successful the company will be, which in turn can help determine how much your stock will eventually be worth. However, according to CapMag.com, you should be wary of companies that consistently record a yearly increase in sales and profits; funds can often be rearranged within a company to reflect market strength and profitability (when in reality, the company could be going bankrupt).

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Buying and Selling

Don't be Seduced by the Beautiful Line in Investing

When to Sell a Stock