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 Market Mysteries of the week

   When is the right time to sell?   

Answer:

You should sell a stock

if you need that money within the next three years

or if your long-term view of the company changes. We've been getting this question a lot lately, so it's worth revisiting.

Why not sooner?

Investing in the stock market is for your long-term savings. You should

never invest expecting anything less than a 3-5 year holding period

.

You’re investing in companies.

Companies don’t change that quickly.

If one of your friends were starting a business and you wanted to invest in it, would you expect them to build that business, expand profits, and double your investment in a few months?

Major corporations aren’t startups, but they still take time.

It takes time

to build out new divisions, conduct research, test products, and gain traction until it translates into actual profits. If you’ve ever worked at a major corporation and requested a new headset, you know things don’t move that quickly.

Why would you approach investing with a different timeline?

In the short term, prices are determined by investors’ emotions and a myriad of changing economic conditions.

No one can predict the short-term. Investing in a company is about saying, “despite the uncertainty of the future,

I think this company will navigate challenges and be stronger and more profitable in 5-10 years than it is today

.” Investing based on whether you think something will "go up" over a short time period is just gambling. People can get good at gambling, but it's not sustainable.

Why can’t I just hang on and sell it when I need cash to spend?

Because

the stock market is too volatile.

On average,

the stock market falls over 13% at some point every year.

That means if you had $1,000 saved, at some point, it might be $870 when you need to spend it. Often the reason the market is crashing is the same reason you’re accessing your emergency savings. And that’s just the average return of the less volatile, diversified investment. Any individual stock is capable of losing most of its value in a single day.

You will want your emergency money to be somewhere safely preserved to have all of it when you need it.

Why does everyone talk about buying and selling so much?

Because they’re paid to.

It’s just like any business. The financial industry is paid to give advice, oversee your investments, and develop new ideas to make you more money.

If you’re getting paid to write about new stock picks every week, you’re going to do it.

It doesn’t mean you’re going to be right.

Today,

the “Analyst Price Targets” for Tesla stock range from $67 to $1,620.

This is the range of expectations on what Tesla’s stock price will be over the next 12 months across 40 Wall Street analysts who are the definitive experts on this stock, spending their entire day, every day, studying and analyzing this company. These experts can’t come to a consensus on whether Tesla’s value will crash -90%, wiping $670B (more than JPMorgan Chase and Home Depot combined) out of the US market, or more than double, creating more than $930B of new value (JPM, Home Depot, and PepsiCo combined). So,

if you think someone has the answer, you’re wrong.

If you’re paid to try and get above-average returns, you’re going to make sure it looks like you’re doing something.

None of it definitively correlates with greater success. Professional portfolio managers get paid to generate above-average returns by trading in and out of select companies instead of just buying and holding all of them.

Less than 10% of them have successfully outperformed over a 10-year period.

That doesn't count the managers that went out of business because they were failing.

So should I just hang onto it forever?

It’s your money. Sell it whenever you want. Our guidance is more for setting expectations on patience and risk management, but if you’ve made a good return and want to take your profits, go ahead.

Otherwise,

always be thinking about whether this recent news or information has changed your long-term view of the company

. An investment is an opinion. You invest because you think this company is making the right decisions. If some news comes out that makes you question that, maybe it’s time to sell. If some news comes out that causes the price to drop, but you don’t think it really affects the company's long-term trajectory, let it ride.

It’s easy to get caught up in short-term thinking.

Just stay engaged with the news, decide how it makes you feel and whether it changes your opinion of the company.

That’s just Scoopin’!

If I decide to sell, what should I consider?

Taxes!

Always check with your tax advisor, but be aware that

you need to pay taxes on any profits you make

. If you invest $1,000 and it goes up to $1,200, you need to pay taxes on that $200 gain when you sell. If you hold it for less than a year, you pay more taxes. So

it’s financially beneficial to hold for longer time periods

.

Consider trimming instead of selling

. Experienced portfolio managers don’t jump in and out of the market. They tweak their positions. When you hear that a major investor sold a stock, it doesn’t necessarily mean they dumped it and went to cash. It usually means they reduced their position in Stock A and bought Stock B, still staying "invested." If an investor thinks a particular investment has done well, they might start to trim and reduce. Consider making small tweaks over time.

💙 The Share Scoops Team

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