I have written two articles recently on why a stock’s price should not be used to determine if the stock should be sold or not (they can be found here and here). So then, the question becomes: How do we decide when we should sell our stocks? This is a topic of contention with no “right” or “wrong” answers. But, it can be useful to know how great investors think about the issue. In his book Common Stocks and Uncommon Profits, the late Philip Fisher shared a few of his reasons for selling a stock. Fisher’s an investor…
So then, the question becomes: How do we decide when we should sell our stocks? This is a topic of contention with no “right” or “wrong” answers. But, it can be useful to know how great investors think about the issue.
In his book Common Stocks and Uncommon Profits, the late Philip Fisher shared a few of his reasons for selling a stock. Fisher’s an investor who had helped shape the investing philosophy of billionaire investor Warren Buffett. Here are some of Fisher’s reasons for selling a stock:
1. With the opportunity to choose from hundreds, or even thousands of listed stocks, investors must make tough decisions on what to buy. Sometimes, with everything that is going on in the market, it is possible that investors have gotten hold of inaccurate information which are then used to make purchase decisions.
If you realise that your facts aren’t correct when you made your buys, then the stocks should be sold. Fisher wrote in his book that “More money is lost by people who’ve held on to bad, losing businesses hoping to get their money back some day.”
2. If an investor is investing for the long-term, he or she needs to keep track of changing facts.
If a situation occurs such that the initial investing thesis for buying a stock has changed negatively with the passage of time, then the stock should be sold. Examples of negative developments could be a deterioration in management quality, the exhaustion of growth opportunities, and the weakening of the company’s finances, among other issues.
3. Another reason to sell a stock is linked to an investor’s scarcity of cash.
Investors often have limited cash to invest. If a unique opportunity presents itself and if it would be foolish to let such a good opportunity go, then an investor should be selling some of his or her existing holdings to take advantage of the new opportunity. But, caution is advised here because it is crucial that we are well-informed about the new opportunity.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.