In recent weeks, the markets are flooded with liquidity from The Central banks to try and create an artificial state of euphoria for investors and traders. Most prominently, the US Fed reserve has slashed rates back to practically zero, as such, we are currently experiencing an irrational phenomenon where the markets are responding to the stimulus rather than the economic impacts of the pandemic. It is at such times when selling assets become extremely hard. On one hand, prices of US equities continue to rise but on the logical side of things, prices should not have risen that much in the first place. Therefore in this post, we will be exploring methods on how to stay sane and not regret holding too long or even missing the window to sell for a profit altogether.

Many articles are centered on what and when to buy but fewer resources are focused on selling. Not selling at the “best” time and falling for the mistake of timing the market but rather just selling in general. As a result, there are many people who have held for long periods of time and have been short-changed by market fluctuations. So, how exactly should we decide on when to sell especially when we are in more volatile times?

Setting price targets before a purchase

We all buy at different volumes and different prices, hence there is little use to tell you what are the common yields before investors or traders let go of their holdings. Basically, it will depend on how early you enter the market during the upturn. Essentially, the earlier you enter, the longer you are entitled to hold and also potentially earning more from the trade when you exit. This is what is known as “Buy Low, Sell High” but executing it often feels extremely different from the original idea. The key to remind ourselves is to base our selling price targets on realism and how much capital you have invested.

For example, if you intend to let the stocks go at a net profit of $1000, then you should have invested at least $20,000 as that would equate to a 5% yield after commissions. However, if you are aiming for a $500 net profit but have only invested $5000, then your yield targets are equivalent to 10% after paying commissions. In that case, you will less likely hit your price targets and perhaps even forsake any profits if the prices fall back to your entry price. Another method is to basically set the profits equivalent to the annual dividends paid by the company.

Base your decisions on facts rather than subjective comments

As investors, you must have encounters “script kiddies” or rather keyboard warriors who are trying their best to tamper with your emotions. Basically, they just want to create a sense of superiority to put down the rest of us. These comments are surprisingly effective because they often come after things happen. For example, comments might be made after a stock price has fallen 5% saying that they didn’t buy in because they “knew” it has not bottomed. Such comments are usually made to make others feel that they were able to predict the future. Whether it was genuine or not, there is no real value in sowing unhappiness in the community or taking their comments seriously.

Hence there is a real need to guard yourselves against such comments and focus on your own reasoning and decisions made. The point I am trying to make is to not make decisions to buy and more importantly sell based on subjective and baseless claims. Instead, always refer to your price targets and only adjusting them when there is new and legitimate information or developments in the market.

Avoid being trapped in market sentiments

The ideal time to buy and sell in the market often feels bad. When the market is filled with fear and negativity, it is hard to risk your capital thinking that you are potentially caught in a falling knife situation. This is also true to a large extent when you are about to sell in the midst of a seemingly endless market rally. That is why we need to be sensitive to the current market sentiments apart from the two former points above. The remedy is a simple one for investors, and that is to never base your decisions on daily or hourly trends. While it is true that occasionally, we might miss out when markets continue to rally or when markets continue to dive but the fact that you made a decisive decision is all that matters to you.

Closing thoughts

This post has elements of previous posts but its goal is a slightly different one and that is to help more investors learn that there is no “right time” to sell your holdings. In fact, there is often very little benefit to buy and ride through market fluctuations over prolonged periods of time. This is because you would have missed out on all the profits by selling and buying back at a lower price.

To recap, always set price targets for exits and review them when there are new developments in the market or companies you have invested in. Secondly, pay no attention to comments and views that seek to throw you off balance and/or cause self-doubt. Lastly, to be unaffected by market trends and sentiments because they often change too quickly for investors to react. Stay realistic and steady!