Archive for May, 2014

Selling Stocks: The Biggest Challenge


It’s always easy to buy stocks, but what about selling them? It’s a completely different ball game, and it’s not one you should be focused on unless you’re on the brink of retirement or you know you’ve made some mistakes in your portfolio. Nobody in their 20’s or 30’s should be focused on selling stocks unless they’re playing around or comfortable with gambling. And just as a quick reminder, gambling (ie – trading, aka – short-term) and investing (aka – long term) are not and never will be related.

First, let me reiterate the focus of Finance Rush: To help younger people establish their own investment strategy using a diversified range of stocks invested continuously for the long-term. With a dollar cost averaging strategy, you will almost certainly come out ahead of everyone else. Why? Because everyone else will be investing in the wrong stocks within the wrong mediums (401(k) for example).

With that said, it’s completely appropriate and natural to try to time the market for buying and selling. It’s also natural to become fearful and greedy with your investments. I always like to refer to Warren Buffett on this:

Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.

When the market crashes, it’s easy to get fearful and to think you’re suddenly losing all your money and that you won’t get it back. My father, and God bless the poor man…, became extremely fearful with his money when the market crashed in 2008 and he ended up pulling everything out. It wasn’t such a bad idea at the time… for him. He was about to retire, he had placed too much trust in the market, he was unhappy, and he didn’t want to lose everything. In some ways you can’t fault him at all. Thankfully, he put it all back in with another broker knowing that he wouldn’t need to spend the money in the next 5-10 years.

Just remember that when one of your stocks or the market as a whole experiences a significant drop, hold onto your emotions and stay focused for the long term. Laziness is your best friend in these cases. You need to ask yourself if you still believe in the stock(s) you chose (which you should 100%… otherwise you never should have bought them in the first place), and you also need to ask yourself whether you can wait for the market to come back up again.

Everybody makes mistakes. One trap I fall into regularly is the failure to admit the times I’ve chosen a loser stock. Take OSG (Overseas Shipholding Group) for example.  OSG received excellent reviews in early 2012. When the stock started to decline, I couldn’t help from thinking “buy more!!” the whole time. There wasn’t any bad news being released, so I became more and more anxious and I constantly wanted to buy more and more! Later that year, the company announced they were hiding losses in their earnings reports, and as soon as the public heard about this, the stock took less than 2 months to plummet to zero. The company went bankrupt. I should have sold everything off, but instead, my emotions got the best of me. I honestly thought the company was too big to fail and that the stock would come back up. Hah! I was dead wrong. But you can bet I learned a lot from it.

$WTW (Weight Watchers) is another example. It was poised to be the “next big thing” in 2013 with their weight loss 360 program being advertised all over during the SuperBowl. The CEO wasn’t getting very good reviews at the time, but I still ended up buying a considerable amount of their stock in January 2013.  Soon after, a news story about another weight loss company had a major effect on $WTW and the stock started to drop very quickly. Then when the CEO left, it spiraled down and down again. I held onto it longer than I should have, but I used OSG as a reminder and sold around $37/share and again at $33/share while it was still dropping. Today, the stock is selling around $22/share compared to its $80 highs. Will it go back up again? It sure could!! Should you take advantage of the low price to buy now? The question instead should be whether you fundamentally believe in the company compared to all of the other companies and options available for the same thing. I used to believe in “weight loss” and $WTW was very visible in the market at the time. The company’s program was being adopted in the business world, and everyone in America was getting fatter and fatter. It made perfect sense, and I truly believed in their business model. Several months after owning the stock, I started realizing how many ways people can lose weight using free apps on their phones, taking pills, going on diets, exercising on their own, etc. Suddenly the company’s products & services weren’t nearly as attractive to me.

In summary, don’t panic when the market is crashing. Look at a market crash as another investment opportunity and not as the time to take all of your money out. Selling should be done while the market is high, not while it is low. It’s never a bad idea to take profits off the table to invest in another safe stock you believe in more. And lastly, if a stock or the market as a whole is crashing or about to crash, try to have some money available (outside of your dollar cost averaging strategy of course) to buy in to the market. So, rather than being focused on selling, be focused on what to buy next!