It’s generally accepted that it is more difficult to sell a share than to buy one.
After all, the buying part ties you in to a share of a company. You have identified a share you like, done your research, consider that the current valuation is fair and that the company’s prospects are strong, so you go ahead and make an investment.
Now that you are a holder of the shares, your options open up and one of the more difficult decisions is when you decide to bid farewell to your investment.
If you, the investor, are in profit, will you miss another leg up by selling them now? Or, if you are losing money, the admission of defeat by selling goes against natural human psychology. Of course, if you have chosen the right stock in the first place, you can console yourself that you are in the company of Warren Buffett, whose “favourite stock holding period is forever”.
There are, of course, many other reasons to sell and the following list, whilst not exhaustive, covers ten of the more common ones –
- The company you bought is no longer the company you hold. Perhaps the company has changed its strategy, direction, management, focus on the customer, or has lost (or had eroded) its Unique Selling Point
- The company has issued a profit warning. You decide that this is the thin end of the wedge, a structural change in the industry, and you are not prepared to wait for the next warning, so you opt to bite the bullet.
- Your personal circumstances have changed. Perhaps you need to raise some cash urgently for personal reasons – it’s likely that your shares are the most liquid of your investments, and you will have the money within a couple of days.
- Your attitude to risk has changed. With age tends to come more caution in investing terms. In earlier years, you required capital growth but now, with one eye on retirement, you may need to switch your portfolio to becoming more income focused.
- Your portfolio needs rebalancing. A rise in the share price (hopefully) has meant that the share in question now has a disproportionate weight in your portfolio. Equally, if your portfolio solely consists of BT shares, even if the current view of BT is that the shares are a raging buy, you should be looking to sell some since all your eggs are in one basket and you need some diversification.
- Tax considerations. In the event of your investments having been successful, you may wish to sell some of them to use your Capital Gains Tax allowance and/or Bed and ISA or Bed and SIPP some to shelter them from future CGT.
- You may want to “top slice” your holding. Your purchase has been so successful that you can sell a certain percentage of your holding to cover the initial purchase costs, such that any shares now remaining are pure profit.
- You like the RBS shares you hold (for example) but consider Lloyds to be the pick of the bunch in the banking sector. You therefore sell RBS and reinvest the proceeds into Lloyds.
- You had a pre-set figure in mind (if the shares rise 10% I will take my profit) and that happens. It is, as they say, never wrong to take a profit.
- You see a downturn coming in the economy. As such you wish to sell some of your cyclical shares and take relative shelter in defensives.