How do you get out of your head when buying/selling stocks?

First Time Investing šŸ£
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Hi,

Iā€™m new to Freetrade for about a month now and wanted to grasp the conditions of buying and selling to see what my mental blockers would be. Iā€™ve bought some stocks that are low and have been on the rise.
Hereā€™s the situation Iā€™m dealt with below and could use your advice on how you manoeuvre around buying/selling stocks.

  1. Iā€™ve sold a few shares just because theyā€™ve reached my targeted percentage increase which Iā€™m fine with.
  2. But I did want to reinvest more money into it (hoping to get a little more shares) but now itā€™s going beyond what I sold for. Fair play, all good.
  3. I have confident itā€™s going to continue going up in the long run but now hesitant on buying shares are such a different markup from what I started with.

Cheers,

Will

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Number 1 - Spot on! You had a target and stuck to it, you wasnā€™t greedy & you didnā€™t panic.

Numbers 2 & 3 Fear of Missing Out (FOMO!). However, are you long term, or short term investing. Personally Iā€™m happy to wait things out long term, so if you get that dip, then donā€™t panic (which most of mine do in the first couple of days! Still learning!!). Then long term Iā€™m hopeful they go up!

One thing I havenā€™t started doing yet is DCA (Dollar Cost Averaging). Which (Iā€™m sure Iā€™ll get corrected if wrong). But basically buying into the company at different times, so rather than just comparing your outlay from one point in time, it is averaged out of different points. (This is my biggest issue currently, as psychologically, I only have the 1 reference point, as havenā€™t started DCA as yet.

My thoughts are (in general). In green, good, in red, donā€™t panic ! Like I said Iā€™m in t=for the long term though. Day trading etc is different kettle of fish!

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Appreciate the vote of confidence, I am in it for the long term so much like yourself going into the red does not bother me as much. Thatā€™s a great point, my DCA for this particular stock is roughly around the same price range so I definitely should just try to change my mindset and if I feel like I want more then just buy more.

Not like I want to get into day trading but sometimes you canā€™t help see the stats on the ā€œMarket Open High/Lowā€ and sit there wondering if itā€™ll reach the lowest point again before buying.

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I think the simplest & first thing I tell myself when I see the shares in red is it is only a loss if I sell.

Admittedly, there is some stocks that may never recover, but thatā€™s life and part of learning I guess, overall I am up, so happy with that.

Good luck though, and hope your investing journey continues to be a successful one :+1:

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Hello @DAT_eclipse :wave:

In the situation you are in, you would be reinvesting because you fear there is more to be had. But your analysis and expectation was all based on a lower price and a less risky investment, that has now all moved on and changed.

If you want to make an investment, treat the analysis in a completely fresh way. Running the numbers again and ignoring what happened in the past with your last investment, is this still an attractive decision?

Iā€™ve been asked a few times about when to exit and general investment strategy both mentally and the execution side. Itā€™s important to point out everyone has a different style and itā€™s key to find what works best for you, investing is a stress and we all react differently to stress!

Hopefully youā€™ll get lots of different answers, and thatā€™ll open your eyes to how others approach the problem. I personally love hearing all the different approaches so this is a topic that interests me too.

Iā€™d like to start by saying I donā€™t agree with Benjamin Grahamā€™s approach to selling at a target price.

My core strategy comes down to, cut losers and let winners ride. If you always cut winners as soon as they hit your target, you miss out on any additional gains (in your situation they keep going up) and you have incurred the tax liability of making a gain (outside of an ISA.) This is fine if everything you invest in is a winner. The issue is when you have a losing stock that keeps going down and ultimately eating up your investment capital and time, and we let those stick around too long.

The best advice I can ever give is to be as clinical as possible when it comes to entering and exiting a trade. There is a lot of emotion involved, and the more you can turn your investments into a process the less likely you are to make a meaningful poor decision. However, still make poor decisions, they are fun and might win you some free drinks, just make sure itā€™s a small poor decision.

Rather than setting your self an upper target price to sell. Why not a trailing stop loss to sell?

Hear me out here.

Letā€™s say you have 10% risk tolerance with any investment. I am willing to lose 10% of this single investment. Once I make the investment if it loses 10% of itā€™s value I will sell. A simple rule and itā€™s nice and robotic (plus when Freetrade gets all the different limit order types you can set this all up in advance.)

This 10% risk tolerance is against one of two things, which ever is higher. The buy price you paid, or the high since you have purchased.

What should happen, :crossed_fingers:, is the price slowly creeps up, and so does the point where you are comfortable selling.

Take this example:

  • Bough company A for Ā£10 a share. If the price goes down to Ā£9 I sell.
  • Day two the price per share is now Ā£9.50. my original 10% drop trigger remains, if it loses another 50p Iā€™m out.
  • Day three the price per share is now Ā£10.50. My 10% drop has now moved to a new high. You can either readjust the math or leave the original risk tolerance in meaning the sell point is now Ā£9.50 (kept the original 10% risk) or Ā£9.45 (you recalculated 10% based on the new high.)
  • Day four the price per share is now Ā£13. The sell is now either Ā£12 or Ā£11.70.
  • Day five the price per share has dropped to Ā£11.50 and I sold. Locking in either a Ā£2 or Ā£1.7 profit (20% or 17% respectively.)

The aim is you sell once your tolerance has been hit, but you keep shifting that tolerance to also help you know when to lock in profits. The downside is you lose Ā£10% or less from the peak, so you want to adjust the risk to what you are comfortable with. Maybe 10% lose but 5% if you are in a profit position for example?

Best of luck with the investing and Iā€™m looking forward to what others think.

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Love reading these posts. My strategy (at the moment at least) is just not to sell. I buy companies Iā€™m confident and long on, and I have no plans of selling any of my holdings for a good few years. Iā€™m in my mid 20s so if I can hold off until retirement - great :tada: I have a job that provides me with cash in the short term, my investing is for a future me to enjoy.

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I was into ETFs and switched to picking around 40 stocks to hold.

Iā€™m now long only on GGP and everything else is a swing trade.

Iā€™ve had a few good and a few bad. Itā€™s so pump and dump atm. Recently gone through tankers and healthcare. Iā€™m staying clear for the moment, managed to get out of NVAX/MRNA before they went pop, took a small hit on HLAG but stop loss saved the day.

I now need to start taking opportunities when I have strong confidence and putting in larger amounts like thousands and making a good amount, rather than hundreds and earning just Ā£20-50 here and there.

Iā€™ve been trying to find at least a few to play each week. Like it was POG yesterday with the dump on news, and probably a quick 20% in days, MARK today on the dump later and VTIQ dump on Friday/Monday before the merger. The only issue is itā€™s time consuming and with work and a family itā€™s tough to keep up-to-date.

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I like the core strategy on not cutting winners as soon as they hit the target so you donā€™t lose out additional gains. I definitely agree on trying to be methodical and not worry too much about the if/ands/buts, end of the day I should be investing in the company and not the numbers jumping up and down. Although honestly Iā€™m not putting in enough yet to worry about hitting the limit on the tax liability on gains haha.

I kind of follow the same rule when it comes to my sell method but I have a question regarding your Day two example. If it triggers your 10% limit do you aim to sell it all do you later reconsider reinvesting in that company?

Appreciate the answer btw, itā€™s a great insight.

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Depends on why it happened.

If the 10% drop was because management suddenly steps down, all my research is almost void. If it was a market movement where everything was hit hard, or an industry fear I can weight that up and see if this is still an interesting target.

That said, I do tend to not touch a company after selling for a while. If I sold at a gain Iā€™ll reassess and see if there is the possibility of a repeat, if I sold at a loss I am generally offput and worried about the mentality of ā€œmaking my money backā€. I often avoid reinvesting in companies I sold at a loss to try and avoid falling into that trap, which does mean I can miss out on gains.

It comes down to knowing yourself. I donā€™t want to try and win back my money. Prime example for me is Beyond Meat. I invested, I didnā€™t setup a sell trigger and it lost 50% of itā€™s value for me. It became so worthless I didnā€™t even touch it. Iā€™ve not gotten rid of it and refuse to reinvest. Here the emotions have gotten the better of me, but I feel more comfortable putting my money elsewhere and see what new companies look exciting.

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Been doing DCA for a while. Itā€™s great at removing FOMO, but it does sting when a stock shoots up.

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A different perspective

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Wow thank you for this way of thinking regarding cutting losses, I hadnā€™t considered anything like this until now - This is my first post here, Iā€™ve been using
Freetrade for only a month now and this is my first venture into trading, only super low amounts at the moment but I plan on learning! Really appreciate posts like this that are really clear for someone in my position to understand and consider when hedging my own bets

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Rather than putting a hardcoded 10% stop loss as what day traders would do, if you are thinking on investing in the long term, you should keep the share for at least a few years.

Now, if the share drops by 10%, I would be concern but rather than panicking, I will investigate. I want to know whatā€™s the driver. Is it a fundamental issue such as company announcing lower revenue or is it driven by market and in which case there is no clear reason? You then look at the shares on the basis of your whole investment portfolio. My risk tolerance is 10% of my portfolio, not individual holdings and if the shares contribute to most of this, then I would probably sell it. In reality, no one shares in my portfolio could have done this because I never put in more than 2% in any one holdings except for bonds and stocks ETFs which form the bulk of my portfolio and I would hold it regardless of the fall because of the benefit of diversification entrenched in it.

To give you an example of when I was faced with similar scenario, let me explain my investment in Lloyds shares. I bought their shares when the price was Ā£0.49 around August last year. It then went up to about Ā£0.60 around October. I sold half of my position so that I realise the gain. I reviewed the companyā€™s valuation and since most analyst predict that the shares intrinsic value is around Ā£0.90, I decided to hold the remaining 50%.

I want to buy more but now that I have sold half of my Lloyds shares, I donā€™t want to invest in it again in case my thesis was wrong. I know Lloyds is restarting their dividend payment then so I hang on to the other half and set a plan to hold it for at least three years to get all the dividends.

Towards the end of the year and early 2020, the share prices get volatile initially hovering around Ā£0.50 and now with the pandemic, it gets down to Ā£0.38. To make matters worst, Lloyds is suspending its dividend payment.

I am faced with a decision, do I sell or do I hold?

I reviewed the companyā€™s valuation again and I think they have a strong cash position to withstand the crisis. The issue is on its intrinsic value which fall dramatically from Ā£0.90 to to about Ā£0.35 which means that Lloyds shares are now over valued. Despite this, I think Lloyds will still be here in the next three years, probably stronger than ever especially since

I have already realised some gains and I think the government would not let it fail. Even if it does, the holdings is only 1% of my portfolio so it is still within my risk tolerance. I then saw one insider buying the shares at Ā£0.33 and I know this is a good sign so I decided to hold on to the shares.

In the context of my portfolio, the fall in value of Lloyds is far offsetted by the rise in my holdings in government bonds and stocks ETF so I donā€™t worry much. The worst thing that could happen is losing 1% and I can stomach that.

At the end of the day, I would echo with everyone sentiment here. You need to figure out what works for you. This works for me. The way to find out what works is to try it out. Limit your loss to 1% of your portfolio or if your portfolio is small, the amount that you can lose without losing sleep over it.

This is why I love Freetrade as my portfolio can be as small as Ā£100 and still limit my lost in any one particular holdings to 1%. What I find annoying now is that I can no longer buy a stock if the toal value is less than Ā£2. In this case, your portfolio needs to be at least Ā£200, which is doable for everyone.

If you have any questions let me know but in case you are wondering, I donā€™t do the valuation myself as I donā€™t know how yet. I use a website called Simply Wall Street which update their valuation in real time. They are quite reliable and to date, it has added a lot of value to my investment plan. I am not paid to do this and will not get any profit hence why I didnā€™t share any link. Just Google it and you will find it.

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Thanks for this - I have been looking at the site you mentioned as Iā€™d seen someone mention it prior. Interesting approaches for me to consider, Iā€™m still also trying to understand how to effectively research and assess the companies/stock Iā€™m considering investing in - the posts and community on this forum are of an insane value!

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panicked at first when i saw the length of your reply, however;
What an amazing breakdown of an investors point of view.
It does largely confirm what has previously been said but the justification behind the reason is (or hopefully should) be so clear cut so everyone can read what you wrote and adjust the figures should they choose to replicate as a starting point.
According to FT itā€™s been 2 years since your last post. I am (and will) do my own research - as everyone should - but really do and want to say: The rundown is muchly appreciated. Words of wisdom as long as DYOR