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Investing: When to Sell

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When investing on your own (as in buying individual securities that you picked), there”s a number of challenging questions that need to be answered for you to succeed. You need to know how to analyze and choose your holdings, what overarching strategy you”ll be using and the frequency of trades that entails, when to buy and finally the most difficult decision, when to sell.

The problem with selling is that it”s hard to give a concrete answer, everyone is different. You”ll also have to convince yourself that it”s the right thing to do, not with emotion, but with rational and proper analysis. Even buy and hold investors have to cut their losses or lock in gains sometimes. Here”s how some well known (and not so well known) investors deal with selling out:

  • Warren Buffet on what he would say to investors now: “The answer is you don”t want investors to think that what they read today is important in terms of their investment strategy. Their investment strategy should factor in that (a) if you knew what was going to happen in the economy, you still wouldn”t necessarily know what was going to happen in the stock market. And (b) they can”t pick stocks that are better than average. Stocks are a good thing to own over time. There”s only two things you can do wrong: You can buy the wrong ones, and you can buy or sell them at the wrong time. And the truth is you never need to sell them, basically. But they could buy a cross section of American industry, and if a Ti presentiamo “Jackpot Jester 50,000”, una meravigliosa slot machine da 5 linee e 3 rulli che ti trasportera in un’atmosfera da vero casino! Scopri il suo look vintage e approfitta della funzione Super Game che ti permette di vincere 50. cross section of American industry doesn”t work, certainly trying to pick the little beauties here and there isn”t going to work either. Then they just have to worry about getting greedy. You know, I always say you should get greedy when others are fearful and fearful when others are greedy. But that”s too much to expect. Of course, you shouldn”t get greedy when others get greedy and fearful when others get fearful. At a minimum, try to stay away from that.”
  • Jim Cramer suggests locking in large gains but leaving some money in play. He says to “take some off the table” whenever there”s a big jump in a stock, since it”s likely that the jump went too far and will pull back to a lower price.
  • Richard Gibbons from The Motley Fool: “If a great stock”s fairly valued, then it generally makes sense to not sell it. You”ll likely know that company better than any new company you add to your portfolio, and it”s hard to find great companies at cheap prices, so you should naturally be reluctant to give up the ones you have. But if the company becomes extremely overpriced, then it”s time to jettison it — it will be unlikely to earn spectacular future returns.”

As you can see, even the best investors can”t give you an exact reason to sell, as selling stocks is a very personal decision. You have to sell a stock when it no longer fits your reasoning for why you bought it in the first place. I tend to hate selling, especially since I”m a long-term, dividend focused investor, but it has happened, and it will happen again in the future.

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