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When do I sell a stock ?

June 17, 2024
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Fred Babu
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Fred Babu

We often discuss what to look for when picking stocks, but what about selling?

One of the worst investing advice I've come across is "buy and forget". If you have trash at home, would you clear them out or continue to leave them in the house?

While we want to buy and  hold, we never want to buy and forget. Always review your portfolio constantly to ensure that your strategy is working out as planned and that you're still satisfied with your investing thesis. 

When it comes to investing, the decision of when to sell a stock is often more difficult than making the decision to buy it. 

In general, there are some intrinsic reasons - related to the stock itself and / or the markets - to sell a stock, and some extrinsic reasons that are related to the investor's finances and lifestyle.

Let's explore possible reasons to sell a stock:

 

1. YOU MADE A MISTAKE

Once you realise you have made a mistake and the investment thesis is no longer valid - instant sell. Don't let a mistake hurt your portfolio, fix it as soon as you realise it.

 

2. FUNDEMENTALS HAVE CHANGED

I recently had a 1 hour debate with my girlfriend explaining to her why I intend on selling one of my stock positions. What seemed okay to her was not okay to me. We all buy stocks and hold them for different reasons and that is okay.

Sometimes you have done all the work but unprecedented things happen, causing the original investment thesis to be broken. In such cases close your losers fast and move on.

 

3. BETTER OPPORTUNITY ELSEWHERE

Sometimes a better opportunity comes around which makes it wise to redeploy our capital.

I have to be honest with you, the more I learn about cryptocurrency, the more it makes sense to just sell everything and put all my capital into crypto. However, that would go against my investment thesis as I would be throwing all my eggs in one basket. 

Conclusion 

That said, becareful of BIAS, as humans we are naturally more attracted to new things, which may not truly be better.

 

 

But of course, the list is not just limited to the three points I mentioned. There are various extrinsic and intrinsic reasons that could cause you to sell a stock. Be aware of them. 

 

 

 

 

 


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