We view investing to be a purchase (of assets) activity in general. As a result, we focus primarily on purchasing decisions and devote less attention and time to selling. However, the decision to sell is just as crucial as the decision to buy. Many investors may have a good understanding of how to value and buy a stock. However, they may not have the necessary structure or abilities to sell those stocks. A precise selling plan can assist in maximizing profits while minimizing losses.
Here are some of William J. O’Neil’s helpful hints on selling rules and their usefulness in your financial business.
When Is It Appropriate To Sell Stocks And Take Profits?
“If you want to make a profit, you need to sell your stocks, and the best time to sell a stock is while it’s still rising and appearing strong to everyone else.”
“It’s imperative that you get out while the getting is good. The trick is to get off the elevator on one of the upper floors and not ride it back down.” “You’ll be late if you don’t sell early. As your stock’s ascent becomes stronger, the goal is to make and accept big gains without being overly exuberant, hopeful, greedy, or emotionally carried away. Remember the ancient adage: “Bulls earn money, bears make a lot of money, but pigs get slaughtered.” “When there is an excess of optimism, sell. They are completely invested when everyone is overjoyed and going around trying to get everyone else to buy. All they can do at this point is discuss. They are no longer able to propel the market higher. To do it, you need a lot of money.” “Rather of riding your investments back down during difficult bear market moments, you must constantly move to protect as much of the profit that you’ve built up during the bull market.” “Be wary of selling on unfavorable news or rumors; they may only have a short-term impact. Rumors are occasionally spread to scare individual investors—the small fish—away from their investments.”
When Should You Sell Stocks and Limit Your Losses?
“A good defense is the finest offense. You can’t win big in the game of investing unless you have a solid defense to protect yourself against enormous losses.”
“When a stock falls 7% or 8% below its acquisition price, you should cut all your losses immediately. Always, without exception, keep losses to 7% or 8% of your total cost. To protect your hard-earned cash, I believe a 7% or 8% loss should be the upper limit. If you are extremely disciplined and quick on your feet, the average of all your losses should be less than 5% or 6%.
“If you wait too long and allow a loss to grow to 20%, you’ll need a 25% gain just to break even. If you wait until the stock is down 25%, you’ll need to generate a 33 per cent profit to break even. Wait till the percentage is 33 per cent and you must make 50 per cent to return to the starting gate. Don’t vacillate because the more you wait, the more math works against you. Make a move right away to avoid making any potentially disastrous decisions. Develop the discipline to act and to adhere to your selling standards at all times.”
“Every fifty per cent loss started as a ten per cent or twenty per cent loss. The only way to safeguard oneself against the prospect of a much larger loss is to have the raw bravery to sell and accept your loss joyfully. Instantaneous and simultaneous decisions and actions are required.
“The same is true for the winning investor who swiftly cuts all losses. It’s the only way to guard against the possibility or likelihood of a far larger loss from which you may never recover.”
“A broad diversification compensates for a lack of expertise. It sounds good, and most people recommend it. In a bad bear market, however, practically all of your stocks will fall, and you may lose up to 50% more in some stocks that will never recover. As a result, diversification is a poor substitute for a solid defensive strategy that includes regulations to safeguard your account.”
Smaller losses are less expensive to insure.
“I don’t mind losing money if it’s only 7% or 8%. I would have lost my shirt if it hadn’t been for the sell restrictions, and I wouldn’t have had the means to ride out the next bull market.”
“Small losses are low-cost insurance, and they’re the only kind you can get for your money. Even if a stock rises in value after you sell it, as many do, you will have met your primary goal of limiting your losses, and you will have enough money to try again for a winner in another stock.”
“Paying insurance premiums is akin to this policy of reducing losses. You’re lowering your risk to a level that’s just right for you. Yes, the stock you sell will frequently reverse course and rise again. Yes, this may be aggravating. But don’t assume that since this occurred, you sold it incorrectly. That is extremely risky and will get you in serious trouble.
Consider this: Was it a waste of money if you purchased auto insurance last year and didn’t have an accident? Will you purchase the same policy this year? You will, without a doubt! Have you purchased fire insurance, personal or for your company? Are you upset because you believe you made a poor financial decision if your house or business hasn’t burned down? No, you don’t purchase fire insurance because you expect your home to burn down. You acquire insurance just in case, to safeguard oneself against the improbable occurrence of a major loss.”