Monday, April 24, 2006

Stock Trading Basics --- When to Sell

“Sell or not sell”, as “To be or not to be”, is the hardest question in investment.

This morning, I received emails and phone calls from some friends. Because the market, especially most of the tech stocks, was down this morning, they felt difficulty to make their decision on whether sell their holding or not.

Before answering their question, I asked the followings:

  1. What is your strategy of investment?

Before you buy a stock, you should have your plan for whether it is a long-term, mid-term or short-term investment. General speaking, if you are a long-term investor, you should not concern the recent market movement. Only the short-term players should be sensitive to the short trend.

  1. What is your holding instrument?

If you are holding a stock, you should worry less. The option holders must seriously think this selling question.

  1. Which sector is your security in?

The hot spot of market moves around always. A big market movement means, most likely, the shifting of some hot sectors.

    1. If your stock is in the hot spot still, you should wait and watch.
    2. If your stock was, but is no longer in the hot spot, you should consider moving out. You can buy it back if you really like it.
    3. If your stock would be the next hot spot, you should add your holding when its price is lower.
    4. If your stock is not in any of above cases, you are most likely a long-term investor (because you are not chasing the hot spot…), you should ask yourself about its industry and potentials. Probably you should think less about the short market movement.
  1. How are the stock’s fundamentals?

Fundamental is the key of a successful investment. The price of a stock with bad fundamentals could rocket to the ceiling, but never be able to stay long. The price of a stock with good fundamentals could decrease, but would be back sooner or later.

Please check your stock’s fundamentals. They will tell you want to do.

Please keep in mind that the over all economy is good still. We are not in a bear market. Some sell off is technical. There are some good earning news lined up for release. Even you really want to sell your holding, you should wait for chance. If you have cash, you should think buy some attractive ones.

From my own experience, I always reduce my holding to half when not sure. In such case, no matter the market up or down later, I will have a reason to be happy with.

When you thinking of selling your holdings, you should “forget” your cost or your purchase price and consider the market factors only. Another important thing is to keep calm. To watching your stock’s price every minute will not only make you crazy, but also block you from make a good judgment.

Remember, the market is always up and down, but your mood should not.

Good luck!

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