Thinking of Selling Your Shares? Not for These Reasons!

We might often read about investing approaches to buy companies. At other times, we hear about reasons to sell companies as well. Some might say that selling a stock is harder than buying a company.

As a long term investor, I endeavour to hold my shares for a very, very long time – even forever – if I can have it my way. So, instead of talking about good reasons to sell your shares, let’s talk about the reasons why you shouldn’t sell your shares.

1. Hitting a 52-week high

When a share hits its 52-week high, panicky investors may be quick to believe that the share price has “gone up too fast”, and is due for a “price correction soon”. These beliefs often can lead panicky investors to sell their shares for the wrong reasons. For me, these beliefs never quite made sense.

Firstly, the conclusion to sell is made from the movement of share prices alone. When we buy shares, we are buying an ownership in a business. As such, we should be spending more time on the business developments and less on the share price movement.

Secondly, if a company is destined to be a long term winner — the only way that can happen is for its shares to continue to hit new 52-week highs. How else would a company like stock market operator Singapore Exchange Limited (SGX: S68) grow to over six times its original value in the past ten years? That’s right. By hitting new 52-week highs again and again.

2. Sell now, and buy back later

What goes up, must come down. Or so they say. This alluring idea is often offered up as a viable action to take when there are fears that shares may come tumbling down one day.

Astute Foolish readers would note that we have to get two decisions right in this case. When to sell, and when to buy again. If this continues on, we will be talking about a whole lot more right decisions to make.

Foolish investors should take note: My fellow Fool Ser Jing has shown that it is awfully easy to miss out on long term gains. From 1 May 1992 to 20 December 2013, the Straits Times Index  (SGX: ^STI) had earned an annualised return of 3.48% excluding dividends. But if the private investor had missed just the 10 best days of the index during that period, his or her returns would be reduced to a paltry 0.12% per year. That’s not going to be enough to beat inflation over time.

3. Your broker called

Among the most amusing reasons that I have heard for selling is the frantic phone call from your broker. One of our avid readers recalled his dismay when his broker decided to call him to inform him that a particular share had tanked. Subsequently, the broker asked him what he would like to do.

Again, much of the conversation revolved around the share price alone and the false urgency to act immediately. Thankfully, our intrepid reader had the good sense to decline the broker’s call for action.

Foolish take away

Investing for the long term may be the best way we can turn up on the other side of the decade with satisfactory returns. By selling shares indiscriminately, we can feed the habit of selling which can have the effect of capping our returns for the long term. So let’s make sure that if we decide to sell our shares, we should do it for the right reasons, and not for the three fickle reasons above.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.