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, I’m buying. If it has a bad ranking, I’m selling. If it fits into my portfolio because I don’t own any other shares from that industry, for instance gold, then I’m buying. If I already have too many gold shares, then I would sell it. And finally, I will buy stocks if I really like them. If I believe in them. If I don’t like them anymore, I can simply sell them again.
Granted, liking a stock is an emotion. However, the first two steps – checking the rankings and my diversification – work like filters that keep me 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.