Selling when you don't have to -
panic stock selling

Panic stock selling, that is, selling when I don't really need to is a common problem. If I have held a share for a number of years and have tracked its performance over this time using internal rate of return (IRR) calculations, and am obtaining an annualised return of 15% or better, then there is normally no reason why I should sell it.

When you are on a winner, why not stick to it and let your profits run? How often do investors sell their best performing investments when they don’t need to? The answer is - more often than you think.

Always keep in mind that unrealised gains on shares in wonderful businesses represent tax-free loans while the shares are held. And you try to invest in wonderful businesses, don't you?

Of course you can get a bigger ego boost by selling a share that generates a handsome profit than selling a loss-making share that may need to be offloaded to minimise losses. So be aware - or beware - of your ego!

If you don’t need the money, there is usually no need to sell; particularly if you have isolated your share dealings and share accounts from your day-to-day finances as I do.

Furthermore, you may be hit with capital-gains tax after selling a profitable share, particularly if you sell it within a year ... so, think twice before selling.

However, there may be situations where a particular profitable share may be over-valued with a P/E ratio at record levels, and at a level significantly greater than its sector average.

In this situation it may be prudent to sell off a portion of the holding, particularly if the holding represents a greater percentage of the overall portfolio compared to other stocks ... in other words, undertake a re-weighting of the stock.

Having a reason to re-weight a holding in a profitable stock using P/E ratios, rather than selling because a stock 'looks high' helps to avoid panic selling.

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