3 Really Bad Reasons Not To Sell

3 Really Bad Reasons Not To Sell

By Bruce JacksonPublished in Investing Strategy on 24 July 2009

Selling shares really is much easier than you think. You should do more of it.

Investors often find it difficult to sell their shares. If I had a pound for every time someone said to me "selling is the hardest investing decision", I'd be a rich person.

What hogwash. Selling is easy. Just click the sell button. Poof. Shares out, cash in.

It can't get much easier than that. And with trading commissions so low, there really is no reason not to sell.

Yet people still struggle to sell. Why?

Bad Reason #1 -- Laziness
The easy option is to do nothing. The same goes in business. Most businesses simply keep doing things the way they've always done them, "because we've always done it that way."

Why change? I'll tell you why. There is always a better way of doing things. You need to constantly challenge yourself, and challenge the status quo.

When it comes to investing, people don't challenge their investments. They don't look at them and say "this one is overvalued now" or "that one is struggling to grow its market share" or "I think there's trouble ahead for this sector".

Unfortunately, there are precious few "buy and hold forever" companies. Just ask the people who thought Royal Bank of Scotland (LSE: RBS) and Lloyds Banking Group (LSE: LLOY) were large, stable, high yielding and cheap companies.

Bad Reason #2 -- Boring
Buying is far more exciting. It's always fun looking for the "next big winner", the share that is going to make your investing fortune. People spend most of their time looking for this illusive company, the next Tullow Oil (LSE: TLW) or the next GlaxoSmithKline (LSE: GSK).

Whilst there is nothing wrong with looking for tomorrow's big winners, I'd suggest investors should spend much more time monitoring their existing portfolio stocks.

Things they need to keep an eye on include…

■The competitive environment. If you own shares in J Sainsbury (LSE: SBRY), you might want to think about whether the resurgence of Wm. Morrison (LSE: MRW) might impact on their future sales growth.


■The economy. In the past 12 months, as we all found out to our cost, ignoring the economy can be wealth destroying. If you think the economy is in for a rough time over the next few years, you might want to think about selling your shares in companies selling discretionary goods, like DSG International (LSE: DSGI) and Carpetright (LSE: CPR).


■Valuation. When a company reaches your estimate of fair value, you should start selling. It's as simple as that. So why don't people sell on valuation grounds? Read on…


Bad Reason #3 - Fear
People fail to sell because they fear of missing out on a huge winner. Fear and greed are the two most powerful emotions investors have to deal with, almost on a daily basis. Fear can come in many guises, but is most powerful when people fear losing money. How else do you explain the massive and indiscriminate selling spree witnessed in March this year? It was based on fear alone.

But there's another thing investors fear almost as much. They fear of selling too early. The stock market is littered with tales of people who bought Tesco (LSE: TSCO) shares in the early days and hung on all the way through to now, or Domino's Pizza (LSE: DOM), one of the best performing shares of the last decade.

The stories usually recount how these great performers were, at various times over the years, over-valued. Yet the companies kept growing, kept beating market expectations, and the share price ended up providing these canny investors with returns in the thousands of percentage points.

This is very much the exception rather than the rule. The intensely competitive environment usually puts a cap on the long-term growth prospects of most companies. For example, although Domino's Pizza dominates the takeaway pizza environment today, it wasn't too many years ago when many thought PizzaExpress would open hundreds of takeaway outlets and rule the world of ham, cheese, tomato, pineapple and anchovies.

Fear not. If a company in your portfolio is highly valued, just click and sell. You'll most likely get the chance to buy it back at a cheaper price anyway.

The Best Parts About Selling
If this choppy market has taught us anything, it should be that you need to sell at the right time. It's not that difficult. And you know the best parts about selling? 1) It's cheap and easy, and 2) you can't lose cash!


http://www.fool.co.uk/news/investing/investing-strategy/2009/07/24/3-really-bad-reasons-not-to-sell.aspx