Twenty-three years ago I dabbled in trading individual stocks. It was a lot harder then, before the Internet. I’d read a couple of books on the stock market and investing and I’d made some money earlier investing in a front loaded mutual fund every month for about five years.
So, I thought pretty highly of my investing skills; I was a natural!
I actually did have decent reasoning ability and without training but with eight years of working for General Motors I decided I could ride the cyclical automotive stocks. I looked at the price charts – not the “technical” charts – to see where the stock was relative to its tops and bottoms of the past several cycles.
I bought some GM stock when it seemed below its average price and I sold some when it seemed above its average. And I made a little money.
I bought some Jaguar when it seemed low. And, I got really lucky when Ford tendered for Jaguar. I sold my stock to Ford for a very nice profit.
Then I bought some Western Union when it seemed low – but it went lower & I bought some more. Then it went to zero and I lost my entire investment.
It wasn’t too bad though. I sold my remaining position in GM and overall I broke even on two years of trading. I learned that I wasn’t, after all, a natural.
During this period I sold because:
a. My stock was near a cyclical top.
b. I received a tender offer.
c. I gave up investing in individual stocks
For many years thereafter, My only investments were in themutual funds of my 401k retirement plan.
Then I discovered Jim Cramer. Say what you will about Jim Cramer, but he says his mission is to get people interested in stock market investing and that’s exactly what he did for me. I started trading a little bit based on things he said on his television program.
In 2005, I made a little money overall. I also discovered that Cramer’s relatively short holding periods of one to three months simply didn’t work for me. And, I started to diverge for his teachings.
By 2007 I’d converted my Traditional IRA and my Roth IRA into self-managed brokerage accounts and, along with the much smaller taxable account I started with, I was managing a portfolio containing 30+ stocks – though the total value is and remains quite modest.
I’d discovered long term holding periods and dividends. I was constantly changing my criteria for selecting stocks and with every change I sold stocks that no longer fit with my new thinking.
During this process, I sold because:
d. I made 10% to 20% and wanted to lock in the profit.
e. I lost money and was afraid I’d lose more.
f. The stock seemed to be going no where and I wanted to use the money to buy something else.
By 2008, my stock selection was becoming more of a system; not fully developed but no longer whimsical.
Then, the market crashed. I was heavily invested in dividend paying financials; banks, insurance companies, and business development companies (BDC’s). These stocked started down and at first I bought more.
During a causal conversation with my wife, she suggested that perhaps I should sell my bank stocks. I defended them as being the best bank stocks out there. But, a few days later, recognizing her intuition as better than my own and having no systematic criteria for selling, I sold all of my bank stocks and most of the other financials.
This decision saved my portfolio. Even though I’d already lost money on all of the financial stocks – as well as everything else; I created a cash reserve that I started redeploying as the market bottomed.
As the rally progressed I continued to buy a little bit at a time and I continued to revise my buying criteria. As my criteria changed I sold stocks that didn’t fit my new criteria. I didn’t always sell every stock that didn’t fit. There were a few that I just liked.
Often, during later criteria changes one of the stocks I just liked would again meet my ever changing selection process and I was glad I didn’t sell.
As the rally started to peter out and I came to believe there would eventually be a major correction or another crash, I sold most of the remaining stocks that did not meet my selection criteria.
The frequency and scope of the changes to my evolving system were diminishing. My stock selection process was becoming clearer and my confidence in it were increasing and I decided I needed, once again, to build up a cash reserve so money will be available to redeploy when the market tanks.
That’s where I’m at as I write this piece.
In this most recent phase I sold because:
g. My wife’s intuition suggested I should.
h. My criteria for selecting stocks as investments changed.
i. To rebuild a cash reserve in order to take advantage of an anticipated market downturn.
These are the reasons I’ve sold in the past. Now why should I sell in the future?
Link to Topics in the Special Report: "When to Sell"