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Shares A Beginners Guide to Making Money Contents

9 When To Sell

When the system you are operating, whether it be formulas, stop-loss, charts, planetary influences or simply intuition convinces you that you should sell a share, then do so immediately.

Selling is a much more difficult stock market activity than buying. You tend to suffer from hang-ups.

Selling at a loss, for example, is a bitter pill to swallow. Take comfort from the fact that the quick loss is usually the smallest. One of the worst mistakes you can make is to hold on blindly and refuse to admit that you have made a wrong judgement. Cut your losses quickly.

A typical beginner's error is to sell a share in which he has made a profit in order to protect a share in which he is making a loss. It is psychologically easier to dispose of a good stock and take a profit than a bad one and take a loss. In general, a share falls because the outlook for it is grim and a share rises because its future looks bright. Sell a dud, keep a winner.

Round figure

Another beginner's mistake is to set a round figure as a selling price. Many people are inclined to do this causing a resistance point just below that figure. For example, if you decide to sell a share when it reaches 200p you will probably find that it will rise to around 197p and then fall again, which can be very frustrating. Eventually, it will fall way down and you will have missed your selling opportunity. Avoid the round numbers syndrome.

It can be fatal to form too deep an attachment to a share. You read the glossy company reports and get to know the names of the directors almost as well as the people living down your road.

You follow their efforts to make the company a big success. Maybe they are starting a project in a part of the world of special interest to you or in an activity you know something about. The more you become involved with the company, the more information you receive, the more you tend to ignore the market in general and believe that the share will beat the law of supply and demand. No way. You don't marry a share when you buy it, nor do you pay maintenance on parting.

Every shopkeeper knows that it is sometimes necessary to hold a clearance sale to get rid of slow moving stock. Look through your portfolio and have a sale now and again.

If a share is slow moving in a rising bull market or has not come up to your expectations after a fair amount of time, sell out. After all, your profits depend to a certain extent on turnover. There may be more exciting opportunities elsewhere.

Some speculators set a time limit and sell if a share has not moved up sufficiently in that period. I prefer a more flexible approach, but you should not let a share idle for too long. It does not pay to keep dull company.

Sell in May and go away

This is an old stock market maxim. The market often drops during the early summer and picks up again in the Autumn. Many fund managers and investors are on holiday during this period and as a result there is less activity in the market. People tend to lose interest in the market except for sellers who need the money. Consequently a small amount of selling pressure can send the market down.

Don't sell shares at the wrong time just because it will help reduce your tax bill.

Bear in mind the maxim paper profits don't count. You have not really made a profit until you have turned your shares back into ready cash.

It's better to sell too soon and the shares continue to rise than not sell and see the shares slide, eating away your capital. After all, you then have the money on deposit ready to step into the market again when you see a good opportunity.

One speculator I know regularly looks at each share in his portfolio and asks himself the question: would I buy that share at the current price? If the answer is no, he sells it. He believes in always leaving a little profit for the next fellow.

Finally, don't suffer sleepless nights worrying about your shares. If this is happening to you it means that you are over-speculating. Sell down to your sleeping factor.

Check List

1. Having made the decision to sell act immediately.

2. Sell a dud, keep a winner.

3. Avoid the round numbers syndrome.

4. Don't fall in love with a share.

5. Don't keep dull company.

6. Remember paper profits don't count.

7. Sell down to your sleeping factor.

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Last updated 2 January 2009.