It's Hard To Say Goodbye...

Investing for most people is a resources game. Unless you have an unending supply of money, at some point you are going to have to sell some of your stocks to buy some others. And this my friends is the hardest part of the investing game.

In my (mis)adventures to date, and even earlier, when I was investing without really paying attention, I've had the hardest time when it was time to sell. I've been reasonably good at picking stocks, most of the time I have made money. I've been good with risk, not getting spooked into selling. I've been good with my homework, not buying stocks just because the talking heads are talking about them. I've been good with patience, willing to let good stocks take time to give returns. The one thing I find most difficult is selling.

There are three aspects to selling; what to sell, when to sell, and how to sell.
I'll share my Thoughts on them one post at a time.

What to Sell:

This can be broken down to three possibilities.

• Sell something that is showing a profit
• Sell something that is not showing a significant profit or loss
• Sell something that is showing a loss

Selling something that is showing profits is the easiest of these three possibilities. You make money, you feel good, you feel smart, all good things -- right? But what if this is the stock that is on the way up and could have made twice as much profit? Not feeling so good and smart now, are you? Consider this; the stock was doing very well and you have a good profit ready to cash out but the stock has been going down for some time. Would you get out, or would you wait for it to go up again? What about a stock that is on a tear, heading up like a rocket; do you worry that this upward momentum is a signal that this stock is heading for a crash. How long would you wait and stay on the ride? These are the kind of thoughts that have always have held me back from selling stocks that are doing well for me. Under what conditions would you sell a stock that is doing well? WhatSayYou?

Selling something that is not showing a significant profit or loss can be a conflicting decision. This kind of stock can be treated as a stock in one of the other two categories based on its current price in relation to the purchase price. This part of the discussion is only relevant if the price is close to your purchase price. A stalled stock can be a dead investment, holding on to your money, but not giving you anything in return; a bit like a fox in the manger. But what if it is a good stock that does not increase or decrease in price, but pays a good dividend. What if it is highly rated and expected to increase in price.Would you sell it? What are your parameters for selling off a stock that is in the doldrums? WhatSayYou?

The most difficult category of stocks to sell, are the ones that are showing a loss. In addition to the obvious reason of losing money, it's also an acknowledgement of the mistake you made when picking, and then holding on to this stock as it went down. I've talked myself out of selling stocks that are losing me money by believing that they will come back, the company is good, etc. etc. But in general holding on to your losses is the worst thing you can do; selling and getting over your mistake quickly is the smartest. It's not easy, but a carefully considered loss is good for many reasons; I'll list a few.

• You can write off the losses on your taxes (consult a professional for details)
• You can free up your money to buy something that will help offset the loss
• Stocks that are losing money have the potential for losing more money
• Even good stocks that can recover take a long time to do so locking you in

Even knowing all this, I have had a difficult time accepting my mistakes and moving on. What prompts you to sell your loss making stocks? WhatSayYou?

I would love to hear your thoughts on the issue of selling stocks.

Join the conversation by leaving a comment.

Thanks for reading.