It’s usually hard for individual investors to sell stocks
in order to take profits or cut losses. There is often a haunting
voice that whispers, “Not right now… maybe in a few
days, maybe a couple of weeks, maybe next month.”
This is especially true of stocks owned over a longer period of
time. We can become attached like old friends and are reluctant to
say goodbye even if they aren’t stocks we’d be likely
to jump in on today.
But there is no reason to get sentimental about your holdings.
Your stocks don’t cry when you’re gone; stocks have no
emotions toward us and we must remain dispassionate about them too.
When it’s time to dump a stock, push the button and get rid
of it—with today’s modern platforms it’s actually
an amazingly quick and clean process to “execute” that
sale with the ruthless, pitiless eye of a trained assassin.
Unfortunately for many investors, selling a stock is emotional
not logical or analytical. Less pragmatic investors make
stock-selling decisions with their sensitive feeling heart instead
of their calculating, no-nonsense brain.
For example, if a stock has been falling, some want to hold on
with the mushy hope of giving it a chance to recover. Or, maybe
they hold on because romantic machismo won’t allow them to
admit to a loss. On the other hand, if a stock has risen since
they bought it, some become intoxicated by the rush of the rise
and want to hold it wishing it will continue to an even higher
As an investor, always keep this hard truth in mind: the
only way to actually make money on a stock is to sell it.
Often times selling a bad stock so you can buy a better one is
the smartest play you can make. Riding up with the new stock is
better than hoping to recoup losses on an older, more tired one.
The key is to get out of falling stocks before they drop further.
Of course we should hold onto the ones that truly have promise but
the trick is to be very businesslike in our decisions about which
is has promise and which needs to be jettisoned.
If you find yourself reluctant to sell a particular stock,
look in the mirror and ask yourself a few simple questions:
- Am I attached for the wrong reason? Is it visceral?
- Am I refusing to admit I made a bad investment?
- Is something irrational holding me to this stock?
(I dig the CEO, use the product or like the company logo)
- Do I find myself rationalizing or making excuses for its
- Is my holding on to this stock in any way
The hard part is to understand when to sell that stock we love.
What is the right time to say goodbye? Are there signs?
How will I know?