Thursday, 6 November 2014

To Sell Or Not To Sell: My Viewpoints And Few Ground Rules: Part I

"To be or not to be"... are the opening words of the world famous Shakespearean play Hamlet in the context of quandary that Prince Hamlet faces with respect to weather to live a miserable life or to end the life and embrace the unknown after death.The dilemma that an investor faces is no less perplexing and multi-dimensional than the words of prince Hamlet. I am reasonably convinced that making a correct decision to Sell is as important as making the decision to Buy for generating above average returns over a long period of time. There is ample material and thorough discussions around how to make a prudent buying decision, however, I have yet to come across  a well developed and comprehensive framework on "how to sell". 

In absence of any structured framework and principles/ground rules, the decision to sell is many a times arbitrary even for seasoned investors. However such arbitrariness is counter-productive to the very objective of generating above average returns for investors. I have formed some ground rules while making a decision to sell which I refer to while making the decision to sell. Obviously, I am just a beginner in this long journey of investing world and as one progresses through this journey, these rules are likely to evolve/change based on the real-world  experiences that I will live through in the market. It goes without saying that I will end paying some hefty tuition fees in the process as well!  Notwithstanding,  stick my neck out and adhere to these rules till proven wrong...

When not to sell:

Before we start discussing when an investor should sell, it is extremely important to understand when NOT to sell. I have in my initial years made a very costly mistake because of not knowing "when not to sell". However the only solace I can have is that I have the esteemed company of some very senior and serious investors in this! I have come across many investors who have spent enough years in the market and still continue to sell for the wrong reasons. Many a times, this "cashing out early" results into a huge opportunity loss for an investor, especially if he/she has bought into a high quality business at right price. So what are some of those reason where investors feel compelled to sell without realizing that they are making mistake? Here they are