Should You Sell Your Stocks Now?

This article is inspired by a Facebook post in one of the many groups where people discuss stocks and the stock market. I see it happening a lot these days: some people are sharing on social media that they’re selling now that the market is low. I’ve created this "frequently asked questions" article about selling and holding on and hopefully it will help you make selling decisions on your own. 

How long do you have to hold a stock before you can sell it?

There’s no limit per se to how long you must hold a stock before you can sell it. You can buy it and within a heartbeat turn around and sell it again. However, as a value investor you’re in it for the long haul. As Warren Buffett says:

“If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes.”

We’re making decisions based on our research, so we buy and then we hold for as long as the business stays wonderful – hopefully decades (read the last answer in this post to find out why we’re in it for the long haul).

Should you sell your stock now?

If you don’t have the answer for this question yourself, you’re in a bit of a pickle. Before you go in you must have an exit strategy. And in general, a thought through trading strategy. I’m a value investor and I follow certain parameters before I invest and have a written strategy for when to sell. Momentum traders jump in on trends and are out when the trend stagnates. Technical analysts follow indicators, ratios or patterns and exit and enter when the price graph shows certain signals. Buffett used this strategy before he became a value investor but hasn’t invested like this in 60 years – read more about it in the article How do You Unleash Your Investing AHA! 

If you didn’t know that you needed a strategy, when you bought your first stock, don’t be too hard on yourself. I've been there myself, so I'm not better than anyone. My recommendation is to learn from your mistakes and educate yourself – find a strategy that fits you.

When can you take money out of stocks?

Ideally as a value investor we want to keep being invested in the same quality company for several years and even decades. Warren Buffett has held some stocks for over 30 years and has on several occasions expressed regret of selling too soon. 

But if you are new to investing and want to play it safe you can sell 50% of the stock you own in a business once the stock price has grown 100% from your buy price. For example, you’ve invested 10.000 in a quality business and own 10 stocks. After some time, your 10 shares are worth 20.000. You decide to sell 5 shares and keep 5 shares invested in the business. In that way you’re able to pull out your initial investment of 10.000. You still have 5 shares invested in the company and they’re worth 10.000.

 

Can investing make you lose money?

Absolutely. For example, if you fail to educate yourself about investing, or if you are a stock trader or speculator where you gamble on a stock, then you’ll likely lose money at some point. At least that's what I've heard from all the traders I've met and from the instructors in the trading courses I've taken. It's a part of the gambling game (remember, that trading is different from investing). 

For value investors we can lose money if we get fearful and sell while the stock is low instead of sticking to our strategy, if we've invested in a business we didn’t understand or if we held on to the business even though our analysis showed that it was time to sell. To read more about a value investor’s strategy, read the article: When Should I Sell My Shares?

 If you’re a value investor and made one of the above mistakes, it’s important to review and learn from your mistakes. If you failed, read my article about How to Recover from An Investing Mistake.

What is the best time of day to sell stock?

This is a question I often get and it’s a very easy question to answer because as a value investor this question is not really relevant. We are long term investors so whether you sell at 9 am or 3 pm doesn’t make a difference. I’ll illustrate it with this example: in 2009 you bought a share of a company at $394. On the day it bounced between 392-396. Today the share of the company is worth 1083-1084. Does it really matter in the long run if you paid $392, 394 or 396 and then sold at 1083 or 1084? Of course, there’s a difference but using mental capacity for such a small difference is not worth it. This example is only for value investors who know what they’re buying and the margin of safety price to pay. If you don’t know what you’re doing, fluctuations could make a huge difference. In my investing course I teach the basic principles of value investing and how to find a buy price.

What is the reason you should buy and hold?

The reason we buy low and hold is because of the glorious “compounding effect”. For example, if you invested 100.000 in a stock 20 years ago and the stock grew on average 15%, you’d have around 1,5 million today. The first year your 100.000 would’ve grown to 115.000 and the next year another 15% would be added but now from 115.000. The graph below explains the concept. Like a snowball on a hill it accumulates.