The wonderful and terrifying thing about investing is that you have two opportunities to be right and two opportunities to be wrong on every investment you make; when you buy and when you sell. There are plenty of books and research papers written about what to buy investments, but very few about when to sell an investment.
An intelligent investor spends some time reflecting before the purchase occurs, to consider when or why they would sell a holding. If you don’t have some pre-established rules, guidelines or systems in place to understand what your sell trigger will be, you’re really just guessing.
These have been identified as three legitimate reasons to sell an investment:
- Your personal investing rules tell you to sell. It requires discipline to follow your rules, especially when it does not feel right.
- You have discovered better investment opportunities. Some investors are constantly searching the investable landscape for new opportunities in comparison to their current holdings.
- Your targets have been met. Other investors have price or valuation targets. Figuring out the intrinsic value of a commodity or asset class is never easy but coming up with estimates for where you will buy and where you will sell is a good way to place constraints on yourself from allowing investments to get away from you.
The truth be told, there is no right or wrong answer on when to sell an investment because investing is a personal matter. Warren Buffett, for one, says his favorite holding period is FOREVER.
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