{"id":57751,"date":"2014-08-17T05:58:31","date_gmt":"2014-08-17T09:58:31","guid":{"rendered":"http:\/\/countingpips.com\/?p=57751"},"modified":"2014-08-17T05:58:31","modified_gmt":"2014-08-17T09:58:31","slug":"dont-make-this-big-investing-mistake","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/08\/dont-make-this-big-investing-mistake\/","title":{"rendered":"Don\u2019t Make This Big Investing Mistake"},"content":{"rendered":"
August 17, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

We receive many emails from subscribers.<\/p>\n

You’ll be pleased to know we read each one of them personally…even the abusive ones.<\/p>\n

These emails can cover a range of subjects.<\/p>\n

Some ask for the secret of making money. We don’t usually answer those questions, but we will now — it’s all down to hard work. That’s it. There’s not much more to say.<\/p>\n

The only issue is who does the work? Either you can do the hard work and reap all the rewards, or you can get someone else to do all the hard work and either pay for it or share the rewards.<\/p>

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But that’s not the most common question. The most common question is ‘How do I know when to sell a stock<\/a>?’<\/p>\n

It’s not always an easy question to answer. So let’s see if we can try in today’s special edition of Money Weekend<\/em>…<\/p>\n

You may find this boring, especially if you consider yourself an old hand at stocks<\/strong>.<\/p>\n

But we’d argue that even the ‘old hands’ should go back to basics every now and then to make sure you haven’t fallen into bad investing<\/strong> habits.<\/p>\n

One of those habits is key to knowing when to sell. It’s something small-cap analyst Tim Dohrmann wrote about in Money Morning<\/em> a few weeks ago — hoarding.<\/p>\n

It’s the idea that some investors buy a stock<\/a> and hold it forever.<\/p>\n

They just can’t bring themselves to sell it. After all, imagine how bad they would feel if they sold it one day and it got a takeover bid the next day.<\/p>\n

Everyone suffers from this fear. In fact, your editor faced this issue a few months ago.<\/p>\n<\/p>\n

This was luck not skill<\/h2>\n<\/p>\n

We had owned David Jones shares for about two years (we forget the exact timeframe).<\/p>\n

One of the reasons we bought the shares was due to its dividend reinvestment plan (DRP). We knew the Aussie retailing sector was in bad shape, but we figured it was unlikely the company would go bust, and that given time things would turn around.<\/p>\n

Earlier this year we had given up hope as the share price had done poorly. We even decided to cut our losses and be done with it.<\/p>\n

Then something happened — laziness.<\/p>\n

We just never got around to pulling the trigger on the stock. It was a good thing. Because barely two weeks after we decided it was the time to sell, South African retailer Woolworths Holdings [JSE:WHL]<\/strong> announced a takeover bid for David Jones.<\/p>\n

The stock price shot up, and we got to pocket a tidy profit.<\/p>\n

A happy ending, right?<\/p>\n

Maybe. But maybe not.<\/p>\n

Arguably, we would have been better off selling the David Jones shares much earlier and reinvesting the cash elsewhere…in a stock that could actually go higher, rather than holding on and wishing for the best.<\/p>\n

What happened with David Jones was luck, pure and simple.<\/p>\n

But by holding on rather than selling, we may have done more damage to our portfolio than we realised.<\/p>\n<\/p>\n

The opportunity cost of not selling<\/h2>\n<\/p>\n

If you’ve ever studied economics you should be familiar with the term ‘opportunity cost’.<\/p>\n

The opportunity cost is the cost of doing one thing rather than doing something else.<\/p>\n

The opportunity cost of buying a new shirt is that you may not be able to afford a new pair of shoes. The opportunity cost of buying BHP Billiton [ASX:BHP]<\/strong> shares is that you can’t buy Telstra [ASX:TLS]<\/strong> shares.<\/p>\n

We’re sure you get the point.<\/p>\n

Perhaps you can see where we’re going with this. By being a stock hoarder, not only are you sticking with shares that aren’t worth the trouble, but you’re also missing out on potentially better investments elsewhere.<\/p>\n

So ask yourself, why are you holding onto that stock? Because you’re worried it will go up after you sell? Well, so what? What about that stock you couldn’t buy that went up because you had your money in a dud stock?<\/p>\n

Do you see what we mean?<\/p>\n

This is why stock hoarding can be so dangerous to an investor. Yes, it’s OK to have buy and hold positions, especially with dividend paying stocks<\/a>. But it also pays to take a regular inventory of your stock positions to make sure you aren’t carrying too much dead wood. In other words, it’s OK to sell stocks.<\/p>\n

If something isn’t doing as well as you expected you need to look at the stock again and think to yourself, ‘If I didn’t already own this stock, would I buy it at this price today?’<\/p>\n

If the answer is no, then why the heck are you hanging on to it?<\/p>\n

If the answer is yes, then keep holding it…maybe even buy more of it.<\/p>\n

The last thing you want to do is end up with dozens, perhaps hundreds of stocks that really don’t mean that much to you…all because you don’t want to sell.<\/p>\n

(An old client of ours from our broking days owned over 200 stocks. He would never sell. It was an impossible portfolio to manage, and we told him so.)<\/p>\n

In short, if a stock is a bad stock then sell it. You can’t get emotional about holding a stock. Don’t be a hoarder. You buy stocks to make money. You shouldn’t buy stocks in order to turn them into collectibles…that’s no way to build wealth.<\/p>\n

Cheers,
\n Kris+<\/a><\/strong>\n<\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

The post Don\u2019t Make This Big Investing Mistake<\/a> appeared first on Stock Market News, Finance and Investments | Money Morning Australia<\/a>.<\/p>\n

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\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au We receive many emails from subscribers. You’ll be pleased to know we read each one of them personally…even the abusive ones. These emails can cover a range of subjects. Some ask for the secret of making money. We don’t usually answer those questions, but we will now — it’s all down to hard […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-57751","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/57751","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=57751"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/57751\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=57751"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=57751"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=57751"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}