February 8, 2019

When should you sell a stock?



Anyone who has ever bought stocks knows this feeling: the desire to sell as soon as the price drops and the share has incurred a loss. However, out of all the reasons for selling a stock, this is pretty much the worst one. If anything, you should buy new shares at this point because the stock has become cheaper.

Remember: We should look at stocks through a wide-angle lens, not a magnifying glass. If we only look at the last few days, it’s easy to think that a stock is in free fall and about to collapse. The truth is that only very few companies actually go bankrupt – in most cases, they regain their value over time, which is why we should practice patience. Because every stock will lose value at some point.

A good reason for selling, on the other hand, is if you need the money to buy different, more promising stocks. Or if you own too many shares of a company and want to diversify, meaning to invest the money in other industries or regions.

Smart selling is therefore based on the same rules as smart buying: If a stock has a good ranking on obermatt.com, Dr. Stern is buying. If it has a bad ranking, he's selling. If it fits into his portfolio because he doesn't own any other shares from that industry, for instance gold, then he's buying. If he already has too many gold shares, then he would sell it. And finally, he will buy stocks if he really likes them. If he believes in them. If he doesn't like them anymore, he can simply sell them again.

Granted, liking a stock is an emotion. However, the first two steps – checking the rankings and his diversification – work like filters that keep him from acting purely on impulse. Because that is expensive and creates fewer returns.

Stay cool – when buying as well as when selling. There are good and bad reasons for both.



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