Investment is commonly regarded as a purchasing (of assets) practice. As a result, we devote much of our attention to purchasing decisions and devote less thought and time to selling. However, the decision to sell is just as crucial as the decision to purchase. Many investors may have a good understanding of how to value and buy a stock. However, they may not have the necessary system or skills to sell those stocks. A detailed sale plan will assist in maximizing profits while minimizing losses.
When Is It Appropriate To Sell Stocks And Take Profits?
“If you want to make a profit, you need to sell your stocks, and the best time to sell a stock is when it’s still rising and looking good to everyone else.”
“It’s imperative that you get out while the getting is fine. The trick is to get off the elevator on one of the upper floors and not take it back down.”
“You’ll be late if you don’t sell early. As your stock’s advance becomes higher, the aim is to make and take substantial gains without being too enthusiastic, ambitious, greedy, or emotionally carried away. Remember the old adage: “Bulls make money, bears make a lot of money, but pigs get slaughtered.”
“When there is an excess of hope, sell. They are completely engaged because everybody is overjoyed and running around trying to persuade everyone else to buy. All they can do at this point is chat. They are no longer able to drive the market higher. To do that, you need a lot of money.”
“Rather than riding your investments back down during tough bear market times, you must still act to protect as much of the profit that you’ve built up during the bull market.”
“Be wary of selling on bad news or rumors; they can only have a short-term effect. Rumors are often spread to scare individual investors—the small fish—away from their investments.”
When Do You Sell Stocks and Limit Your Losses?
“A solid defense is the strongest offense. You can’t win big in the game of investing unless you have a good defense to defend yourself against major losses.”
“When a stock falls 7% or 8% below its purchase price, you can cut all your losses immediately. Always, without exception, keep losses to 7% or 8% of your total cost. To protect your hard-earned cash, I believe a 7% or 8% loss should be the upper limit. If you are extremely disciplined and quick on your feet, the average of all your losses should be less than 5% or 6%.
“If you wait too long and allow a loss to grow to 20%, you’ll need a 25% gain just to break even. If you wait until the stock is down 25%, you’ll need to make a 33 percent profit to break even. Wait until the percentage is 33 percent and you must make 50 percent to return to the starting gate. Don’t vacillate because the longer you sit, the more math works against you. Make a move right away to avoid making any potentially disastrous decisions. Develop the discipline to behave and to adhere to the sale laws at all times.”
“Every fifty percent loss started as a ten percent or twenty percent loss. The only way to defend yourself from the risk of a much larger loss is to have the raw courage to sell and accept your loss cheerfully. Instantaneous and simultaneous decision and action are needed.
“The same is true for the winning investor who easily cuts all losses. It’s the only way to guard against the possibility or likelihood of a much greater failure from which you can never recover.”
“A wide diversification compensates for a lack of expertise. It sounds amazing, and most people recommend it. In a bad bear market, though, almost all of your stocks will fall, and you could lose up to 50% more in certain stocks that will never recover. As a result, diversification is a weak replacement for a solid defensive strategy that includes rules to safeguard your account.”
Smaller Losses are like Cheap Insurance
“I don’t mind losing money if it’s just 7% or 8%. I would have lost my shirt if it hadn’t been for the sell rules, and I wouldn’t have had the money to ride out the next bull market.”
“Small losses are low-cost insurance, and they’re the only kind you can get for your money. Even if a stock rises in value after you sell it, as many do, you will have met your primary goal of limiting your losses, and you will have enough money to look again for a winner in another stock.”
“Paying insurance premiums is equivalent to this strategy of limiting risks. You’re lowering the risk to a degree that’s just right for you. Yes, the stock you sell will often reverse course and rise again. Yes, this can be aggravating. But don’t assume that because this happens, you sold it incorrectly. That is extremely dangerous and will land you in serious trouble.
Consider this: Was it a waste of money if you purchased auto insurance last year and didn’t have an accident? Will you purchase the same policy this year? You can, of course! Have you purchased fire insurance in your name or for your company? Are you angry because you believe you made a poor financial decision if your house or company hasn’t burned down? No, you don’t purchase fire insurance because you expect your home to burn down. You buy insurance just in case, to cover yourself against the improbable occurrence of a major loss.”