Issue 23: Psychology of selling or knowing when to hold and when to fold?

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Issue 23: Psychology of selling or knowing when to hold and when to fold?

In last month’s edition, we talked about buy, hold or sell concepts and in fact that buy and sell decisions may be the result of two investors having a different perspective on the same investment; as one sees it as a buy and the other a sell, as logic suggests that for every seller, there needs to be a buyer.

However, it seems that investors may place more rigour around a ‘buy’ decision and conduct more research into parting with their money than perhaps they do when making a ‘sell’ decision or in fact, find ways to avoid making that sell decision, given the work and effort they have put into the initial decision to buy, hoping it will eventually prove to be correct.

Even where investors have an informal framework to guide buying decisions, such as a simple back of the envelope calculation on what the yield on an investment will be over a period of time; they may not realise it, even this approach implies some criteria for the investment to be sold – when it no longer provides a satisfactory yield or return. The question is ‘do we act on it or do our emotions influence the decision?’

Not having a more formal exit plan in place may drag on an investment portfolio’s performance so it may be useful to have a view on the exit criteria at the time of entering the investment. Having a plan to sell both profitable and losing positions can take the emotion out of the decision.

So, if it’s true that not many of us adopt an exit plan when we make an investment, what can be done to help us plan to make these decisions both strategically and tactically keeping emotions aside?

Let’s take a look at some ideas for consideration.

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