Let’s admit it – buying stock is much, much easier than selling for most people. We just have a hard time figuring out when to let go. However if we want to increase our portfolio we have to be able to handle both transaction.
How do you do create a system that helps you make profitable sells? When do you need to sell? Is timing the market the best plan? I want to answer a few of those questions and hopefully get your feedback.
Timing the Market – Good Idea?
There are some people who love to try and time the market. They think they can predict the best time to buy low and sell high. Unfortunately the vast majority fail at marketing timing. Why? According to David Swensen, it’s almost impossible for regular investors to know with their lack of resources.
Even investing professional who have teams and programs designed to analyze the trends can’t figure out a solid and consistent plan.
Know Your Investment Goals
Identifying and creating goals for your investments is the first step in creating a rational system. You can’t develop steps unless you know what outcome you’re seeking.
Within those goals, you’ll probably have certain strategy for your funds. For example, what you have in your 401(k) retirement fund will probably be different than your taxable investment funds.
Develop a System
Too many times, investors go by the news clips that push you to sell now. What we all could do instead is develop a system to let us know when it’s time to sell. There are a few guideline you could consider when setting up your rules. I’ll use stock for the examples, but you could apply them for other investments.
The stock has reached a target goal. You bought it at $20/share and now it’s up to your target of $30/share. Selling it now can give you a nice profit. Don’t get carried away though. You want to make sure you’re not also greedy enough to miss the prime opportunity. Like at the casino, some people stay longer than they needed to and end up losing money.
The fundamentals of the company have changed for the worse. If you’ve taken the time to carefully review a company’s stock, then you owe it to yourself too keep an eye on it.
Your portfolio’s diversification has changed drastically. Every so often you need to reevaluate your asset allocation to make sure you’re sticking your target. Being diversified can help you reduce some risk.
Thoughts on The Best Time to Sell
Having a system can help take the emotional component out and allow you to make more rational decisions.
I know many of you are already investing in the stock market. I’d love to hear your thoughts. Since timing the market doesn’t usually pan out, how do you determine when to sell?