The factors helping investors making better decisions
Anyone can buy a stock, but knowing when to sell is the hard part. A recent study shows professional investors also struggle with this. When it comes to buying, their picks outperformed the market average but they would often sell at the wrong time.
The study identified four factors that led to better-investing decisions:
- When the fund manager viewed the stock as being more important — measured by the size of the position.
- Using up-to-date information ex. selling on earnings release dates outperformed.
- Using fundamentals as reasons to sell instead of basing on past stock performance.
- Investing with less stress.
Adam Grossman of Humble Dollar gives three lessons on selling:
- Put as much effort into selling as you do buying. Investors tend to put more effort into buying — which can be a more enjoyable and interesting process.
- Map out a plan for selling. Make a schedule to sell based on milestones (i.e. pricing targets) or sell parts of an investment over time as it grows.
- Consider how the stock fits your portfolio. If a position gets too large as a percentage of your portfolio, it’s worth considering a sale.
But knowing when to sell is always difficult. If you invested in Tesla or Moderna in early 2020, you would have made a nice return but should you sell? Here are 5 reasons to sell a stock.
For the lazy: The simple solution would be to hold a low-fee fund or exchange-traded fund (ETF) — and ignore the decision to sell all together.