If there’s one line I hear constantly from people who invest, it’s this: “I should have sold my shares when the price was high so I could buy many more shares at a cheaper price.” This constant regret made me think hard, though. Is this a rational and logical thing to be able to expect to do on a consistent basis?
When investors sell their shares, they usually have their reasons and thus feel comfortable doing so. It’s only when the shares start to rise even further that people have regrets about not holding on. The converse is also true — if investors hold on to shares that subsequently decline, they are likely to kick themselves for not selling earlier and then buying them again. Let’s look at both scenarios a little more closely in order to deduce the logic behind them.
Can we predict the future?
The first thing an investor should ask himself is, can I predict the future of share-price movements consistently? The answer to this should be “no,” as evidenced by everyone I’ve asked. However, when an investor sells his shares with the expectation that he can buy them back at a lower price, he is implying that he is able to predict that share prices will decline after he has sold.
Thus, selling shares in order to buy them back later is a bad reason for selling since we can’t know for sure how share prices will move in the short term.
Keeping an eye on the business
If investors are business analysts (rather than market analysts), they should have their eye on the business rather than the share price. There are two scenarios to consider, here. If the business is performing well, profits are rising, and cash flows are healthy, why should you sell your shares just in the hope of buying more if the price gets lower? If a business is doing well, there is usually no reason to expect a sharp share-price decline (unless we are mired in a long, punishing bear market).
Conversely, if the business is deteriorating, investors should rightfully sell the shares and avoid the company altogether rather than try to buy the same shares back at lower prices.
Regret is a useless emotion
Note that regret is the most useless emotion in investing, as it achieves nothing and also leaves one’s brain in perpetual “hangover” mode. If you buy shares that subsequently rise, but you don’t sell, and the shares sink back to their purchase price, try not to be regretful. Instead, it is much more beneficial to learn about how the business is doing — and if you should perhaps buy even more shares to add to your original position.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.