I get some version of this question all the time. “Okay, but when do you actually sell?”
It’s a fair question. I’ve spent a lot of time writing about holding stocks through pullbacks, scary headlines, recessions, and the endless stream of reasons someone thinks the market is about to fall. I don’t trade very often, and I certainly don’t believe a stock becomes a bad investment simply because it falls 10% or 15%.
But I’m not a hold forever no matter what investor. There are absolutely reasons I will sell. The trick is knowing what those reasons are before the stock falls 20%, not after.
Every stock I own has a thesis behind it. Most investors spend hours deciding when to buy a stock and almost no time deciding what would make them sell it. I want to know both before I ever hit the buy button.
Let’s start with the easy part.
What Doesn’t Make Me Sell
This list might be even more important than the one that follows, because it’s where most investors make their mistakes.
A stock falling 10% doesn’t make me sell. A stock falling 20% doesn’t automatically make me sell either, and neither does the overall market falling 10%. The Fed changing its outlook doesn’t do it. A scary headline doesn’t do it. Someone on CNBC declaring the stock is finished certainly doesn’t do it.
A competitor launching something new doesn’t automatically make me sell. One bad quarter doesn’t, and a stock underperforming for three months doesn’t. A stock getting expensive while its earnings keep compounding doesn’t make me sell. And social media deciding the AI trade is over? That definitely doesn’t make me sell.
The common thread is simple. Every one of those is about the price or the mood, not the business. If a stock is down because the business is deteriorating, I have a problem. If it’s down because investors are nervous about something that doesn’t change my thesis, I may have an opportunity.
So what does make me sell?