You may recall my interest in writing about market volatility. I have focused mainly on the opportunities that arise in a downturn to buy shares in large companies. The most recent massive market correction took place in March 2020. This was when the Covid lockdown brought a terrible decline in some high-quality corporate stocks. This summer, so far, the market has teased us with select opportunities here and there. We have agreed that we are in a “bear market”. This brings me to a very intriguing dilemma. A dear friend (whose opinion I greatly value on all things investment-related) recently brought this to light. We all seem to have some degree of discipline (or strategy) in determining when to buy, but we really struggle with when to sell! I have this challenge myself. Many professional money managers (mutual funds, etc) publish a “discipline of selling”. As a Certified Financial Planner – and former “client hand holder”, I recall spending considerable time persuading clients not to sell – to avoid lock in losses. My sharpest memories in this regard are of the Crash of 1987, the 2000-2002 period (the Bush-Gore Florida narrative, then 9/11, then the collapse of Enron, Worldcom, etc). Three years that just dragged by mercilessly. Later, of course, we lived through the Great Recession of 2008/2009, which shaped many of our fear profiles regarding serious nest egg investing. During the 2020 Covid lockdown, the market was down and bounced back quite quickly. Before we could adapt to isolation and wearing masks. You probably remember all of this. But when should you sell?
Interesting, I suggest you google “The Art of Selling a Losing Position”. It’s a compelling piece written by Troy Segal and updated on June 1, 2022. You’ll have to read it for yourself, but I’ll give you a few highlights to whet your appetite. He writes, and I quote, “Let’s talk about the timing of selling stocks and then discuss a selling philosophy that works for every type of investor.
1) Always think about future potential. You can’t do anything about the past, so don’t dwell on it. 2) A sales strategy that is successful for one person may not work for someone else. 3) Once we own something, we tend to let emotions like greed or fear get in the way of good judgment. 4) It is important to think critically about selling; know your investment style and use that strategy to stay disciplined, keeping your emotions out of the market 5) A 50% drop means the position will have to gain 100% to get back to the original amount. Questions to ask before selling 1) Why did you buy the stock? 2) What changed? 3) Does this change affect your reasons for investing in the company? If a stock has fallen in price, there is usually a reason for it. The quality you originally liked about the organization still exists or has it changed?”*
Now, this is just a brief summary of Segal’s comment on a “discipline of selling.” We hope you’ve been inspired to dig deeper so you can make smarter decisions on behalf of your investment account. On a personal note, I’ve simply been looking for publicly traded companies that pay a minimum dividend of 4%. The tax benefit of corporate dividends is currently attractive. Sometimes, I have had to wait a long period of time for a stable dividend paying company to fall to a price that fits this profile. The trick is to know that the dividend is, in fact, sustainable and will continue indefinitely into the future. If not, we’re right back at square 1 – what is our “selling discipline”? With a heavy heart I thank my dear friend for his contribution to this very important topic!
The opinions, forecasts and views expressed herein are those of Tommy Williams and do not necessarily represent those of Williams Financial Advisors, Private Client Services, RFG Advisory, their employees or their clients.
This material is for educational and informational purposes only. It is not legal, tax or investment advice, nor a recommendation to buy, sell or hold any specific security, nor an endorsement of any specific trading strategy. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Securities offered by Registered Representatives through Private Client Services, member FINRA/SIPC. Advisory products and services offered by Investment Advisory Representatives through RFG Advisory, a Registered Investment Adviser. RFG Advisory, Williams Financial Advisors, LLC and Private Client Services are unaffiliated entities. No advisor
*The Art of Selling a Losing Stock..Troy Segal, Investopedia>Trading updated 6/1/22 https://www.investopedia.com/investing/selling-a-losing-stock/…….by the sum of pages 4 and 6