When should I buy? When should I sell? What do I buy? What do I sell? These are the seemingly simple questions that make investing so interesting (and hard).
Every investor thinks differently about these questions. And every investor is investing within differing context. There is no one size fits all approach.
In this week’s video, Casey raises some questions and offers guidance to help folks not overlook the sell side of the investment decision making process.
Often Overlooked – Adam Grossman – Humble Dollar
Investing Decisions: When Should I Sell?
**For a downloadable PDF version of this transcript, click here!**
Casey Mullooly: In episode 265, we’re going to talk about why it takes two to tango. Welcome back to the Mullooly Asset Show. I’m your host, Casey Mullooly and this is episode 265. Thanks for tuning in as always. So, in this episode we’re going to talk about why it’s not so much about the buying, but the selling.
There’s a common phrase in our industry that for every buyer, there’s a seller. Every time someone buys a security, there’s someone who’s selling that security and vice versa. Every time someone’s selling a security, there’s someone who’s buying it. It takes two to trade.
Recent article from Adam Grossman over at HumbleDollar, talked about why making the sell decisions is sometimes oftentimes a lot harder than making the buy decisions. He discusses how a relative of his bought Moderna before the pandemic hit and is now sitting on this massive gain and doesn’t know what to do with it.
Casey Mullooly: This is the dream when everyone invests, they want to hit on a double or triple, they want their investments to sky and go to the moon. That’s the whole point, right? But these massive gains can turn into massive regrets pretty quickly because if you sell too early, it raises the question well what if this continues to go up? Did I just get out early and essentially blow it?
You talk to people in the industry, some of the people who have more experience and they’ll tell you that some of their biggest regrets are not the things that they bought but the things that they sold.
So, he goes on to talk about why making the buying decisions it’s more fun, it’s a discovery process. You’re figuring out what the next big thing is going to be. You’re researching new technologies or new companies that are exciting. And it’s fun to buy in and believe that these things are going to go up and make you all this money. It’s exciting, I’m not going to lie.
Casey Mullooly: But Adam compares the selling decision-making process to doing the household chores, which I got a good chuckle out of. It’s more maintenance, you’re selling because maybe you need the money or maybe you’re rebalancing your portfolio. You’re losing something instead of gaining something.
Look, there’s no right answer. This is what makes investing so interesting is that there’s no right way to make the buying decisions or the selling decisions. Everyone has differing opinions on this, but some things to consider before you even maybe get into the transaction is why am I buying this in the first place? Is it just because the line’s been going up? Is it just because this thing has been going up a lot? Is that what’s making me want to buy this?
We’ve talked a lot about how, especially in the crypto and meme stock space lately, are these people really investors? Or are they speculators? Are they just gambling? You have to know your reasons for buying something and if those reasons for buying something turn out to be wrong, then what are you going to do? Then do you sell?
Casey Mullooly: And if not, then what’s going to make you sell? Or are you ever going to sell? You have to know these things before you get into the transactions. Another thing to think about is what amount of my overall investment portfolio am I going to invest this in this particular stock or security?
When big gains happen, they throw off the amount of risk that the overall portfolio is taking because the position grows as the game grows. So, that’s something to consider. And finally, is this money that I’m spending to buy this thing, is it going to be needed in 1, 3, 5, 10, 30 years? And if so, what happens if this money’s gone? What if I lose all of the money?
Casey Mullooly: Definitely something to consider when you’re making these decisions. We talk all the time about how when we’re making big in, out, buy, sell decisions, we have to think about the reverse side of that transaction.
If I’m getting out, what’s going to make me get back in? And if I’m getting in, what’s going to make me get back out? And making these on-off decisions isn’t really the best way to go about things in our decisions. We tend to take a dimmer switch approach, which is an analogy that we like to use here.
So, look it’s not so much about the buying as it is the selling. It takes two to trade and these things require a lot of thought and that’s the message for episode 265. Thanks again for tuning in and we’ll see you for 266.