Discipline Required In Making Decisions To Sell Stock Holdings

The most difficult decision investors face is when to sell.

It bedevils investors whether stocks are rising or falling. It torments equally both loser and winner. It brings anguish to the biggest and smallest investors.

Ask about the stock that was sold too early and hear a tale that would make a fisherman seem modest. Ask about the stock that was sold too late and hear a lament that might break your heart.

Buying, by comparison, is easy.

There is little indecision: You wouldn’t be buying if you didn’t think the stock was headed higher. The future is yours, and you have chosen the vehicle that will get you there.

You have lots of aid; you have the backing of those who claim to know the future, the highly paid analysts who examine stocks from every angle. Go for it, your broker says. Who are you to question such erudition?

For such reasons the National Association of Individual Investors and its sibling, the National Association of Investment Clubs, have developed lists of reasons for selling or not selling shares you might own.

Right off, they declare their bias: Before you invest learn everything you can about a stock, and when you invest do so for the long term, resisting the urge to sell when shortterm events cause temporary declines.

But, recognizing that there may be times when it is both necessary and wise to sell, they charitably list these reasons for doing so:

To improve the quality of your portfolio.

If there is an adverse change in the company’s management.

The company has falling profit margins or a deteriorating financial condition. If the pattern looks as though it might persist, get out.

Competition is becoming severe. Is the company failing to diversify successfully? Is it failing to invest in research and new product development? In short, is it failing to keep up with growing competition?

The company relies on a single product or a single customer.

The company has a disappointing growth rate or is proving to be cyclical. -You want to improve your potential for gains or decrease the risk of losses. But, you are advised, be careful not to turn into a trader rather than a long-term investor.

Since decisions must be examined both positively and negatively, there are also reasons NOT to sell stocks, the most obvious being that you’re tired of doing nothing and want action. Instead, let your stock do the action.

Neither should you sell just because the price is down. Before deciding, determine if the decline is justified by facts or due to other reasons. If it’s the latter, why you might even consider buying more shares.

And you shouldn’t get rid of your stock because of temporary bad news. Again, make a determination. It could be another buying opportunity.

Finally, don’t sell to take just a small profit.

This final piece of advice might help you avoid one of the most piercing and frustrating actions an investor can take, which is to sell out of a company that goes on to fame and fortune.

Just think of those poor folks who sold out of Microsoft or McDonalds or Automatic Data Processing because those stocks had a little, inconsequential dip. Think of how you might feel should it happen to you.

Why you’d probably feel as badly as the guy who committed the other blunder, that of holding on too long to a stock that was going nowhere but down.