Ask Colin

I sold shares that later rose. The missed gains would have exceeded losses on the rest. Should I have just held them all?

What I try to do is to sell the shares that start going down and hold the shares that keep going up. Of course, this is not easy. The hardest thing to do is to buy back the shares you sell, but which subsequently turn around and head up. However, I think that you are beginning to feel your way to this aspect of investing.

You say that you sold shares that subsequently went up. This could suggest several things:

1. That you took profits prematurely. If this is the case, you need to look at how you can build into your investment plan a mechanism to help you hold on longer. You say that you have bought my book. Once you have studied it, you will see how I deal with winning investments, by taking profits progressively. This has a strong psychological motivation, as well as being sound rebalancing.

2. That you were frightened out on what turned out to be a minor correction. In this case, you need to look to having clear rules for where to set your stop-loss levels. Then you need to test the plan on lots and lots of charts, to develop the confidence that the plan works. This will help you to keep your discipline and follow your plan.

3. That your stop-loss was hit or your exit signals were triggered. In either of these cases you acted correctly in selling. However, what you have to learn is that no method is perfect. Markets unfold in endlessly varying ways. Every method will lead to selling something that subsequently resumes its upward path. You will see in my book that I have definite guidelines that include buying back into a share that I have sold, but which re-establishes its uptrend. You need a similar guideline or rule in your investment plan.

Keywords: