বেচার তিনটা বৈধ কারণ Three good reasons to sell

Everybody talks about rules for buying. Almost nobody talks about rules for selling, and yet selling is where most people lose their money. The reason is simple: when you buy there is only hope, and when you sell there is a gain or a loss, and both distort thinking.

This lesson takes a firm position: there are three legitimate reasons to sell. Everything else, the price fell, the price rose, you are bored, somebody told you, is not one. Three rules can be remembered, and being memorable is why they work.

Reason one: the argument has broken

On the day you bought, you wrote three sentences saying why. If any of those sentences has stopped being true, it is time to sell, whatever the price is doing.

An example. You bought because the company had little debt and strong cash flow. Two quarters later debt has doubled and cash flow is negative. Your argument no longer exists. The price may still be above what you paid, and that changes nothing: what you now hold is not the thing you bought.

Two cells of that grid are hard, and they are where most mistakes happen. Sitting on a loss with the argument intact is where people sell out of fear. Sitting on a gain with the argument broken is where the pleasure of the gain stops people looking at the problem.

Reason two: you need the money

There is no shame in this and no theory to it. School fees, medical bills, a housing instalment, a need in the business. Shares are a form of money, and the job of money is to be there when it is needed.

One caution only: the less often this reason arrives the better, and that depends on the emergency fund. Someone with one is not forced to sell at the market's worst moment. Someone without one finds that markets and lives go wrong at the same time, almost always.

Reason three: the position has grown too large

This is the happiest problem and the least understood reason. You bought 20,000 taka of a share, four years later it is worth 120,000, and it is now 40% of your total money. The company is fine and your argument is intact. You should still sell some.

Because diversification is a matter of percentages, not of belief. Having 40% in one place means one accident at one company can rewrite your whole plan. How much do you sell? Enough to bring the position back inside the limit you set yourself, and no more.

What is not a reason to sell

The price is down 20%. That is information, not a reason. The question is why. Did the whole market fall, or did something happen at this company? If the second, go back to reason one. If the first, it has nothing to do with your argument.

The price is up 50%. Also information. Good companies go up; that was the whole idea. Selling merely because the price rose is how you lose the one share that would have gone up tenfold over a decade, and that one share is usually what decides the result of the entire portfolio.

Write the selling conditions on the day you buy

The most effective technique is a dull one: on the day you buy, write down the three events that would make you sell. That day your head is clear, you have no gain or loss, and you can be honest with yourself. Six months later, when the decision actually has to be made, your head will not be clear.