Insights on Buy/Sell Criteria
You often hear about some great investment you should buy, but very few people talk about when to sell—and maybe more importantly, how to know when to sell. How do you know when it has run its course and it is time to move on? Or… how do you know when it’s time to exit? Maybe, it isn’t going your way, and it is time to move on.
Before you buy any investment, decide what success looks like and what failure looks like. Also before you buy, decide that if the investment starts to tank, what exact point you will choose to move on.
People tend to react emotionally when they see the stock market declining. And worse, they tend to make emotional decisions. Decide how much fluctuation you are comfortable with, and use that level as a guideline for making wise choices.
People generally buy stock market-type investments because they think and hope they will increase in value. Unfortunately, they rarely make a plan for exit.
Here is a simple guide to follow.
If this doesn’t go my way, I am going to exit when it gets to this point. I am going to reevaluate if it is best to keep this if it goes down ____%
If this does go my way (as I expect) I am going to revaluate if I still want to keep it after it has gone up _____%
What is YOUR Plan?
So, after you decide to purchase, how do you know if an investment has performed well? What’s the target you’re looking to get from it? In other words, how much do you expect the investment to increase over what period of time?
On the other hand, what does it look like if it doesn’t go your way? When will you decide to pull your money out of that investment? When it decreases by 10 percent? Or by 20 percent?
Last year the stock market was up nearly 30% and yet the gross domestic product increase was only about 2%. That is a discrepancy.
If You Wouldn’t Buy Now …
A good way to know if your stock and mutual fund investments are good for you is to imagine all those individual investments and being completely in cash in your retirement accounts. Today, if you did not have each of the investments you currently hold, would you want to buy them now? Would you want to buy them again at today’s price?
If you would not choose to buy these investments again today, then it may be best for you to sell them.
You’re Not in the Right Spot if the Stock Market Needs to Go Up for Your Plan to Work.
What is happening is a great time to evaluate the predictability of your plan.
“Only when the tide goes out do you discover who’s been swimming naked.”
~ Warren Buffett
Do yourself a favor and find out for certain if you are over-exposed. Give us a call and we can chat for a few minutes to help you know how what you have is aligned to give you what you expect.