THE RIGHT TIME TO SELL
August 8th 2008 00:00
I’m back to sharing with my fellow newbies today. And our topic is that very simple, yet very confusing, thing called “The right time to sell.” At the very beginning of my venture in the securities market, the question on when to sell was one of my biggest problems. Why?
Hmmm…let me see… Well, actually, my problem at the moment is that I was not able to buy… (Coffee, I mean). It is four 4:00 a.m. I don’t know why I woke up this early. I couldn’t get back to sleep no matter how I try, yet I am too sleepy to write. I went to brew the last ounces of my “Kapeng Barako” (coffee from Batangas Province) but it’s not there anymore… Can is empty! Darn, I already brewed those last ounces yesterday!
I was supposed to buy some at the mall last night…Why didn’t I? Oh, it was that ultra-portable notebook computer that has 8.9 inch screen… Must be a lot easier to carry around… and the price of oil is already going down…and it is not that expensive… and sonafab… I better get out of here... fast!
I like the thing, but... Whew!
Now, where was I? Ah, yes… the right time to sell. My dilemma then can be simplified this way: I cannot sell my stocks when their price is going down because I am going to lose money. And I cannot sell my stocks when their price is going up because I am going to lose some money!
That was a problem right? I cannot sell my stocks no matter where the prices are going (up or down) because my impression was that I have money to lose either way. To explain: I was going to lose money if I sell when the price is going down because my paper loss will be realized. And I was going to lose money if I sell when the price is going up because, if I sell now, then I’ll lose the opportunity to earn more since the price is on the way up.
Greed is the name of the ugly head in the case of the latter. But how was I to know? There is another name that they will use to call you (and you don’t want to be called that) when you sell, say at $30, when the price goes all the way up to $50!
It is a mind game really. Psychologists will make a lot of money here, unless they crack up themselves at the prospects of having a lot of money – and then losing it. Fortunately, there is another way of finding out when to sell, and that is by understanding the logic of the market geniuses, those who already made a lot of money in stocks, whose actions, no matter what they do, are never called stupid.
Let’s check out two (2) for this post:
Bernard Baruch, the financier who built a fortune in the stock market declared “Repeatedly, I have sold a stock while it was still rising – and that has been one reason why I have held onto my fortune. Many a time, I might have made a good deal more by holding a stock, but I would also have been caught in the fall when the price of the stock collapsed.”
Nathan Rothschild, a very highly successful banker, when asked if there is a secret in making money in the stock market replied “There certainly is, I never buy at the bottom, and I always sell too soon.”
What was that line again that became famous here in the Philippines recently?
Answer: “Moderate their greed!”
Hmmm…let me see… Well, actually, my problem at the moment is that I was not able to buy… (Coffee, I mean). It is four 4:00 a.m. I don’t know why I woke up this early. I couldn’t get back to sleep no matter how I try, yet I am too sleepy to write. I went to brew the last ounces of my “Kapeng Barako” (coffee from Batangas Province) but it’s not there anymore… Can is empty! Darn, I already brewed those last ounces yesterday!
I was supposed to buy some at the mall last night…Why didn’t I? Oh, it was that ultra-portable notebook computer that has 8.9 inch screen… Must be a lot easier to carry around… and the price of oil is already going down…and it is not that expensive… and sonafab… I better get out of here... fast!
I like the thing, but... Whew!
Now, where was I? Ah, yes… the right time to sell. My dilemma then can be simplified this way: I cannot sell my stocks when their price is going down because I am going to lose money. And I cannot sell my stocks when their price is going up because I am going to lose some money!
That was a problem right? I cannot sell my stocks no matter where the prices are going (up or down) because my impression was that I have money to lose either way. To explain: I was going to lose money if I sell when the price is going down because my paper loss will be realized. And I was going to lose money if I sell when the price is going up because, if I sell now, then I’ll lose the opportunity to earn more since the price is on the way up.
Greed is the name of the ugly head in the case of the latter. But how was I to know? There is another name that they will use to call you (and you don’t want to be called that) when you sell, say at $30, when the price goes all the way up to $50!
pic source: Wikipedia
It is a mind game really. Psychologists will make a lot of money here, unless they crack up themselves at the prospects of having a lot of money – and then losing it. Fortunately, there is another way of finding out when to sell, and that is by understanding the logic of the market geniuses, those who already made a lot of money in stocks, whose actions, no matter what they do, are never called stupid.
Let’s check out two (2) for this post:
Bernard Baruch, the financier who built a fortune in the stock market declared “Repeatedly, I have sold a stock while it was still rising – and that has been one reason why I have held onto my fortune. Many a time, I might have made a good deal more by holding a stock, but I would also have been caught in the fall when the price of the stock collapsed.”
Nathan Rothschild, a very highly successful banker, when asked if there is a secret in making money in the stock market replied “There certainly is, I never buy at the bottom, and I always sell too soon.”
What was that line again that became famous here in the Philippines recently?
Answer: “Moderate their greed!”
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Comment by British bulldog
Is now the right time to sell?
Well if you bought stocks in the PSE around one month ago when it stood at around 2250 against todays 2600, you could make a case, but only a thin one.
My belief after yesterday's big rise in the US, the second of the week as oil tumbled to 115$ and the dollar strengthened is that we may well have seen a bottom as inflation may well reduce here and so now is the time to be in stocks not out. This is not an exact science, but if you watch the earnings reports of Lehman Brothers, Morgan Stanley and Goldman Sachs in the US this coming week on Bloomberg TV around 6.30-8.00 in the evening you'll get a feel for the way things are going, for they are the last big US financials to report for a while and it is US financials and their fortunes that have dominated all global equity markets this last year.
Regards,
British Bulldog
Comment by Fobzy
Fobz
Well done, new chum.
Comment by British bulldog
An apology for a mistake on my last posting. I said the last three big US financials would report next week and I should have said next Month ! Having said this, it has some implications.
Many of the US markets moves in recent months have been driven by financial and housing linked earnings most of them to the downside. Now for a month we won't have any, which is largely good news. Instead normal companies who on the whole are issuing good numbers will report. An example is Wallmart this week. Their capacity to shock on the downside is less and so those of us invested can sleep a little easier.
The other news group that influences markets is economic data like unemployment, inflation, GDP and consumer confidence and that will grow in importance. It is of particular interest as the effect of the tax rebate in June-July fades. In aggregate though we should expect a less volatile market for a few weeks.
When we get to mid September and hearfrom Lehman Bros, Morgan Stanley and Goldman Sachs I stand by my original comment. It will be a good snapshot from two strong investment banks and one weak one as to where we are with the credit crunch, or to put it another way, can they see it in their rear view mirror yet? For when they can we can all breathe a sigh of relief.
Comment by Market Newbie
Stock Market Punk
Hey, Fobzy, not much of a gambler anymore eh?
Very nice inputs, British Bulldog. I hear some of our brethrens at the PSE are betting that the market will go beyond expectations this week... Last week was not that bad.
Comment by Anonymous
The latest contribution from me is a 'no brainer', but as I
I'ml largely a bull, then notice that I made no contribution in response to the previous two down days in the US, where I lost 10% on my investments in US financials, before a 2% rise last night!.
Market moves this week ( in the US) have had a complete correlation with the price of oil. It was up for two days and the market down, it fell last night and the market rose. OK this is not a great tool as you cannot pre- trade on the PSE while oil falls in the US trading session overnight, but if you believe that oil is going to keep falling ( from a high of 147$ a barrel, it is 115$ today) on demand destruction in the US and Europe ( and there is a lot of evidence that it will) then that's good news for the PSE now up nearly 20% since mid July low's.
The 'wild card' is if oil can break and hold below 100$ as this will be a huge stimulus to equity markets, symbolic as it is of money diverted from oil retailers to us consumers and our consequent raised ability to spend money with other Phil companies trading on the PSE whose stock prices will consequently rise on increased profits from our increased spending with them.
Regards,
British bulldog.