I think it goes…..You gotta know when to hold em’, know when to fold em’.
Figuring out when to sell is the most crucial and many, many, many times overlooked parts of investing.
Please note, I said investing. I did NOT say trading.
When to sell depends greatly on the investor’s style:
- Are you investing in high growth, volatile, riskier companies with large price fluctuations that are just fine with you?
- Are you low risk investing and any big gain or loss builds a cause for concern in your mind.
If you’re like most people you probably fall somewhere in between. To be honest, portfolio management is personal and everything I’ve typed so far should give you some indication of why. The folks that get this concept end up having the most success. Investing shouldn’t ruin your life due to stress. That stress can be generated from either FEAR or GREED. Knowing which bothers you and how to deal with them is more important that finding the next Amazon or Apple stock pick.
Okay, so you’re still wondering when to sell right?
Letting your winners run but shaving some profits to build a new position in your latest investing idea is pretty sound. Too often I see people sell a great long term investment because they get caught up in the short term fluctuations and the emotions that these fluctuations create and they want to ring the register fully with no plans for what they’re going to do next.
In other situations, selling your entire investment to put your money to work elsewhere might make sense. This isn’t market timing. Market timing would be selling a stock at $50 and planning to buy it back at $40 if it falls. That’s market timing and trading, not investing.
This writing is laser focused on INVESTING.
So getting back to selling your investment, the key metric to why is usually because you have another opportunity to deploy your funds and you think it’s a better risk/reward setup for you. This is the main key to why we build portfolios with a mix of stocks and bonds. By doing so you can always keep your money working for you at various levels of risk/reward and eliminate a ton of the timing mistakes that can crush individual investor returns.