Selling

Ideally, you would only have to sell when you need the cash for consumption. However, we do not live in an ideal world and there are circumstances when you should consider selling.


Probably the most common reason for selling is that you either made a mistake when you bought the share because your research was inadequate or because the circumstances of the company changed for the worse unexpectedly.

Peter Lynch

  1. Each new occurrence is like turning up another card. As long as the cards suggest favourable odds of success, you stay in the hand. Consistent winners raise their bet as their position strengthens and exit the game when the odds are against them, while consistent losers hang on to the bitter end of every expensive pot. Consistent winners also resign themselves to the fact that they’ll occasionally be dealt three aces and bet the limit, only to lose to a hidden royal flush. They accept their fate and go on to the next hand, confident that their basic method will reward them over time.
Scott Johnston
  1. We sell the stock if the reason for purchasing the stock is no longer valid.
Van Schreiber
  1. The first is the notion that stocks do become over-owned, over-loved, even over-adored.
  2. The second aspect to the sell decision is when the industry we’re investing in, or the theme we’re investing in, begins to develop some blemishes – in terms of the competitors within them. We like it when the competitors to our company are doing great. I think it’s a wonderful healthy thing to be in a trend where everybody’s doing well.
  3. You must sell when the news is good, but the stock seems to be losing its responsiveness to good news.
Arthur Zeikel
  1. Our reluctance to consider new information with an open mind makes it harder to recognise the flaws in our old operating premise. Instead, we tend to develop a “defensive” interpretation of new developments, and this cripples our capacity for making good judgements about the future.
  2. It is hard for people who reach a decision after careful analysis of their information to change their minds easily – or quickly.
Philip Fisher
  1. More money has probably been lost by investors holding a stock they really did not want until they could at least come out even than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realised, the cost of self indulgence becomes truly tremendous.
  2. What matters is not whether a loss occasionally occurs. What does matter is whether worthwhile profits so often fail to materialise that the skill of the investor in handling investments must be questioned.
  3. Sometimes management deteriorates because success has affected one or more key executives. More often it occurs because a new set of top executives do not measure up to the standard of performance set by their predecessors. When any of these things happen the affected stock should be sold at once.
  4. It sometimes happens that after growing spectacularly for many years, a company will reach a stage where the growth prospects of its markets are exhausted. From this time on it will only progress at about the same rate as the national economy does. In this instance, selling might take place at a more leisurely pace than if management deterioration had set in. Possibly part of the holding might be kept until a more suitable investment could be found.
Warren Buffett
  1. Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
  2. You simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved. When carried out capably, an investment strategy of that type will often result in its practitioner owning a few securities that represent a very large proportion of his portfolio. This investor would get a similar result if he followed a policy of purchasing an interest in, say, 20% of the future earnings of a number of outstanding college basketball stars. A handful of them would go on to achieve NBA stardom, and the investor's take from them would soon dominate his royalty stream. To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to suggesting that the Bulls trade Michael Jordan because he has become so important to the team.
Robert Gillam
  1. The most important thing about making money in the stock market is to realise that you’re hunting with a shotgun. So we sell immediately if our expectations are incorrect. The price you pay for holding a loser is that you allow the loser to occupy a spot in the portfolio that could otherwise be occupied by a winner! Selling is much harder than buying


It pays to be nervous when directors, specially of small companies, sell large values of their holdings.


Another warning sign is when results are delayed. As Nigel Lawson put it "Bad figures always take longer to add up than good ones".


Some investors believe in cutting their losses. This gains added significance if you are able to utilise capital gains tax losses by selling some of the loss making shares where the decision to hold or to sell is otherwise marginal.

Burton Malkiel
  1. I agree with the Wall Street maxim “Ride the winners and sell the losers” but not because I believe in technical analysis. With few exceptions, I sell before the end of each calendar year any stocks on which I have a loss. The reason is that losses … can offset gains you may already have taken. Thus taking losses can actually reduce the amount of loss.
Richard Driehaus
  1. It’s not so much finding and buying the winners, it’s the ability to retreat, to sell. The question is not how many winners or losers you have, but how much do you make on your winners and how quickly do you cut your losses. Seventy percent of our trades could be losing trades, but if the winning 30% are large enough to overcome losses you could still show great returns. I would rather err on the side of discretion, even if we miss some of the upside.
George Ross Goobey
  1. As a long-term investor I have found it more profitable to run profits and cut losses.



But do not rush to sell just because the price has gone up a lot.

George Ross Goobey
  1. In considering whether one should sell an investment it is much better to ignore the price paid and to endeavour to judge the future of the company on the facts of the situation in which the original cost of your investment plays no part whatsoever.
Philip Fisher
  1. This brings us to another line of reasoning so often used to cause well-intentioned but unsophisticated investors to miss huge future profits. This is the argument that an outstanding stock has become overpriced and therefore should be sold.
  2. In this era of unlimited human wants and incredible markets, there is no limitation to corporate growth. If the job has been correctly done when a common stock is purchased, the time to sell is almost never.


Be patient.

Philip Fisher
  1. ... the need for patience if big profits are to be made from investment. It is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens.



Sell if you need the cash for a better investment. But remember that a lot of bad decisions are made when switching investments.

Warren Buffett
  1. Sometimes the market may judge a business to be more valuable than the underlying facts would indicate it is. In such a case we will sell our holdings. Sometimes, also, we will sell a security that is fairly valued or even undervalued because we require funds for a still more undervalued investment or one we believe we understand better. We need to emphasize, however that we do not sell holdings just because they have appreciated or because we have held them for a long time.
Philip L Carret
  1. The trader who is always looking for “action” in the market will usually jump from one stock to another during the course of a bull movement only to find at the end that he has made far less money than he would have made by putting his money in 10 or 12 carefully chosen issues at the beginning and holding them.



Some investors deliberately limit their holdings to a specific number of shares. So, if they come across an opportunity that is significantly better than what they hold they will buy the former and sell the latter. This is termed "forced displacement". Laura Sloate, Scott Johnston and Foster Friess all limited the number of their holdings through forced displacement. Jim Slater said "Private investors know that, even with a portfolio of ten shares, their first choice is better than their tenth. This is an edge over the institutions that have to invest in several shares simply because of the size of the funds managed by them. Also, limiting the number of shares gives adequate time to monitor the investments in depth".



Some investors do sell when they feel that the shares are over valued, and in some cases merely near full valuation.

Van Schreiber
  1. You must sell when the news is good, but the stock seems to be losing its responsiveness to good news.
Scott Johnston
  1. If a big mutual fund loads up and shoots the stock price up, it may become way overvalued. We’ll sell into the buying frenzy, capture the profit, and come back later.
  2. We sell if it gets way overvalued. If a big mutual fund loads up and shoots the stock price up, it may become way overvalued. We'll sell into the buying frenzy.
Bruce Sherman
  1. You have to sell not when they're fully valued, but when they're close to fully valued. To be candid, most sales in a bull market have been good intellectual sales, but the stocks really haven't gone down. So I'm really converting a piece of paper to cash.




Sell if you are constantly worrying about your investment. Maybe you did not understand your attitude to risk. In the market, you either eat well or you sleep well. In this case, sell down to your sleeping point.

John Ballen
If you have an investment where you need to be calling the management on a daily basis to find out how the business is, that's probably not something you should be investing in. You should have enough confidence in the longer term promise of the investment. You shouldn't really care about this year's Christmas sales. You should be investing in companies where if Christmas is bad, you would be thinking, that's a wonderful opportunity to buy more stock.



There are mixed views on the use of stop losses.

Scott Johnston
Third, and generally most important, we sell the stock if the relative price strength begins to diminish. We found out that stuff leaks out of companies.

Laura Sloate
Improve what you know, always keep improving but stay with it. 1990 was a rough year and we learnt some things. One is, don’t let your losses run. What we do now is, barring an October ’87 crash, or a Gulf War kind of situation, if a stock goes down 15%, we look at it and rethink our assumptions.

Burton Malkiel
The filter method is what lies behind the popular "stop-loss'' order favoured by brokers, where the client is advised to sell his stock if it falls 5 percent below his purchase price to ''limit his potential losses.'' Exhaustive testing of various filter rules based on past price changes has been undertaken. The percentage drop or rise that filters out buy and sell candidates has been allowed to vary from 1 percent to 50 percent. The tests covered different time periods from 1897 to the present and involved individual stocks as well as assorted stock averages. Again, the results are remarkably consistent. When the higher transaction charges incurred under the filter rules are taken into account, these techniques cannot consistently beat a policy of simply buying the individual stock (or the stock average in question) and holding it over the period during which the test is performed. The individual investor would do well to avoid using any filter rule and, I might add, any broker who recommends it.

Gerald Loeb
1 I know that people who will watch their losses and cut them short and I know that people who will watch their profits and when they tend to diminish, begin to take some of them, will fare the best in the long run. It over-shadows almost any other investment principle that I know.
2 The buying or selling power of the “public” once on a stampede is almost beyond calculation, and the fact that they are probably doing an eventually costly thing does not in any way decrease the loss in fighting the trend or make up for possible profits in not taking advantage of it. (George Soros said the same thing on a TV interview. He said even he would be trampled if he tried to buck the trend.)
3 There is nothing more difficult to practice than accepting losses. This is specially important because there are bound to be times when you sell something and it turns right around and goes up. There is only one way to look at it and that is to think of the costs of selling at the wrong time as comparable to an insurance premium.
4 Cutting losses is the one and only rule of the markets that can be taught with the assurance that it is always the correct thing to do. The most important single thing I learned is that accepting losses promptly is the first key to success.

George Soros
I get it wrong as often as the next guy. I just realise when I'm wrong quicker.

Peter Lynch
1 The stocks that take you the farthest in the long run give you the most bumps and bruises along the way.
2 Basing a strategy on general maxims such as “Sell when you double your money”, “Sell after two years” or “Cut your losses when the price falls 10%” is absolute folly. It’s simply impossible to find a generic formula that sensibly applies to all the different kinds of stocks.
3 If a stock is down but the fundamentals are positive, it’s best to hold on and even better to buy more. If you can’t convince yourself “When I’m down 25%, I’m a buyer” and banish forever the fatal thought “When I’m down 25%, I’m a seller”, then you’ll never make a decent profit in stocks.

Warren Buffett
1 If you've thought that investment advisors were hired to invest, you may be bewildered by this technique. After buying a farm, would a rational owner next order his real estate agent to start selling off pieces of it whenever a neighbouring property was sold at a lower price?
2 Moves like that, however, are what portfolio insurance tells a pension fund .... to make when it owns portions of enterprises such as Ford or General Electric. The less these companies are being valued at, says this approach, the more vigorously they should be sold. As a "logical" corollary, the approach commands the institutions to repurchase these companies ... once their prices have rebounded significantly. Considering that huge sums are controlled by managers following such Alice-in-Wonderland practices, is it any surprise that markets sometimes behave in aberrational fashion?
3 Even though we had bought some shares [in Wells Fargo] at the prices before the fall, we welcomed the decline because it allowed us to pick up many more shares at the the new panic prices. Investors who expect to be ongoing buyers of investments throughout their lifetimes should adopt a similar attitude towards market fluctuations; instead many illogically become euphoric when stock prices rise and unhappy when they fall.



Some reasons when not to sell are given by Peter Lynch:
1 Lynch (in among “the 12 silliest things people say”): “It’s taking too long for anything to happen.” Most of the money I make is in the third or fourth year that I have owned something.
2 Do not sell merely because the price has gone up. Lynch calls this “pulling out the flowers and watering the weeds”.
3 Do not sell in anticipation of a crash. Lynch: “A decline in stocks is not a surprising event, it’s a recurring event. If you live in a cold climate, you expect freezing temperatures, so when your outdoor thermometer drops below zero, you don’t think of this as the beginning of the next Ice Age. You put on your parka, throw salt on the walk, and remind yourself that by summertime it will be warm outside.”
4 There is always something to worry about. Avoid weekend thinking and ignore the latest dire predictions of the newscasters. Sell a stock because the company’s fundamentals deteriorate, not because the sky is falling.
5 When you sell in desperation, you always sell cheap.

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