Rational Advisor

Three things to think about before selling your investment

Dalbar in its study continues to show that investors who trade a lot under perform those investors that remain with their strategy.

What the study shows is that holding a sound intellectual portfolio does make sense. And yet, investors, I mean speculators continue to tinker their way to misery

But there has to be reasons to sell an investment So what are the “right reasons” to sell - the ones that investors can employ with confidence? Ask yourself these three questions:
Question No. 1: Am I thinking about selling this investment based on thoughtful analysis of the strategy, or just general market panic? Bad moods, unfounded fears, and “general market sentiment” shouldn’t shake you loose from a strategy that is still fundamentally the same as when the market’s mood was peachier.

Question No. 2: Do I have a plan for where the proceeds of the sale will go next? I’ve found that almost every time I have no plan to put freed-up cash to work, I’m making an imprudent choice to sell. It makes sense that you should sell only when you’ve concluded that there is somewhere else your money would be better invested, or spent. The money should move to something better.

Question No. 3: Have the original reasons or assumptions I made about the investment when I bought it changed significantly? This entails asking hard questions about the strategies fundamentals and the market or markets a strategy is involved in.

Let me end with a final note: Expect imperfection. Realistically, investors should expect good strategies to have some imperfections. There is NO perfect investment process or strategy, and a level of understanding of possible imperfections will go along way to NOT selling unwisely

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