How to Think when Selling Stocks

August 1, 2012 | Comments (10)

I don’t know about you, but selling is my weak point. Maybe I’m too trusting of management or willing to wait through hard times instead of scrutinizing new developments more. Either way, I’ve made plenty of bad decisions when it comes to selling and have lost a lot of money in the process.
I have posted several articles and checklists on when to sell. See below.


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Jae Jun

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I don’t know about you, but selling is my weak point. Maybe I’m too trusting of management or willing to wait through hard times instead of scrutinizing new developments more. Either way, I’ve made plenty of bad decisions when it comes to selling and have lost a lot of money in the process.

I have posted several articles and checklists on when to sell. See below.

But I realize that the above articles are more of an overview and do not get down to the specifics or provide good enough examples.

It’s easy to say you should sell when the company fundamentals have changed, but what does that mean exactly?

To get a better idea of the thought process, there is no better way than to read letters to investors written by high profile fund managers.

Go ahead and read Einhorn’s Q2 letter to investors. It’s this weeks recommended read.

If you decide to read it later, here’s a paragraph on DELL which is part of the top 10 2012 value stocks list.

We also closed several positions during the quarter. Dell (DELL) proved to be a disappointment. We had thought that the growth in the non-PC business would be enough to offset the deterioration in the PC business. The non-PC growth was smaller than we’d hoped and the PC deterioration was worse than we’d anticipated. While DELL has a good balance sheet, it appears likely that management will try to use much of the cash to try to buy its way into better businesses. At a minimum, this will erode some of the value cushion that the cash balance creates. We exited with a loss.

His thought process is impressive indeed. It is not clouded or biased. Just objective, rational and decisive.

This is the type of elevator pitch that I’ll have to work on for both selling and buying. I could write pages of analysis but true skill requires boiling it down into its simplest form. A skill that Einhorn just seems to be born with.

About Jae Jun


Jae Jun is the founder of Old School Value. He is on a mission to provide practical and actionable value investing tools, tutorials and educational material to help empower the individual investor. Keep in touch with Jae via any of the methods linked below.

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  • http://www.valuefolio.com Daniel Sparks

    Great stuff here. I’d say that psychological bias is more likely to have an effect on selling decisions than buying decision. Many people settle with an analysis checklist, but a selling checklist is just as appropriate

  • jsarasin

    To sell or not to sell GRVY? Is the question.

    To buy or not to buy GRVY? Is the question.

    Damn RO2. You better show us some revenues.

  • http://www.oldschoolvalue.com Jae Jun

    @Daniel,
    Yes selling checklist helps a lot. Better to be systematic rather than to be subjective and hold on for a little longer or sell without thinking about the options. Still very hard though.

  • http://www.oldschoolvalue.com Jae Jun

    Bad case scenario: RO2 is a complete flop and doesn’t make money. How much do you think GRVY will fall? That’s really the only question and answer I need to ask myself.
    I’m sure there is revenue and from what previous quarters has shown, their other games should add to revenue as well.

    Well roughly 2 weeks until results are announced.

  • Derek

    Jae, I always appreciate your candor. You’ve lost a lot of money on some picks. So have I. So have most investors, although many will not admit it.

    The markets have been BRUTAL over the past four months. I have seen many stocks that look like such a bargain now but you just don’t know how much farther they may fall. You could dive in thinking 50 per cent off the price from April is too tempting to pass up and yet you could still find yourself down 20 per cent in a month or two from now.

    But the stocks with solid fundamentals will rebound.

    As to the topic at hand, it’s not my only guide but I watch insider selling carefully and when it comes in a big wave, I’m out!

  • jsarasin

    Yeah I am not selling. I can take the pain. By the way your articles/websites have reached another level. Great work and keep it up.

  • Pingback: What I have been doing, my portfolio, Coaching, Selling, Facebook valuation, Michael Mauboussin, and Winners and Losers | Value Investing Journey

  • Derek

    Sorry if I missed it, Jae, but are you still holding Dacha Strategic Metals?

  • http://www.oldschoolvalue.com Jae Jun

    yes I still hold

  • http://www.stableinvestor.com/ Dev

    Yes…its really tough for us to sell stocks too.
    It seems that we enter into a relationship with them. :-)

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