Why is selling so difficult?
Joel Greenblatt, in his book *You Can Be a Stock Market Genius*, explains why selling is more challenging than buying. Buying has relatively clear criteria, such as purchasing stocks at a low price or when they are undiscovered by the market. However, selling is far more complicated. Over time, the market begins to recognize the value of the stocks, reducing the investor’s advantage.
Factors for determining the time to sell
Factors determining the time to sell include significant stock price appreciation and deterioration in a company’s fundamentals. A useful strategy is “trading the bad and investing in the good.” This means selling the stocks of average companies in difficult industries and holding onto those with strong fundamentals as long-term investments.
- Stock price appreciation
- Deterioration in company fundamentals
- Market recognition after specific events
Selling after specific events
Selling after specific events is easier than selling average stocks. For instance, stocks emerging from spin-offs, mergers, or bankruptcies have experienced special events that created buying opportunities. After such events, the market begins to recognize the hidden value due to surprising changes.
Selling stocks after a spin-off
For example, after a spin-off, the market starts recognizing its value, and the initial investor’s advantage significantly decreases. This process can take weeks to years. Triggers for selling could be a substantial price increase or a change in the company’s fundamentals.
Trade the bad, invest in the good
Unlike the famous advice from Will Rogers, “Buy low, and when it goes up, sell it. If it doesn’t go up, don’t buy it,” the strategy of “trading the bad and investing in the good” is more practical. This implies deciding which types of companies to buy at a low price.
- Buy at a low price
- Create buying opportunities through special corporate events
- Sell when the stock’s characteristics become widely known
Conclusion
Selling is a much more difficult decision than buying. However, by following Joel Greenblatt’s advice, focusing on factors like stock price appreciation and deterioration in company fundamentals, you can determine the right time to sell. You can achieve successful stock sales by adopting the strategy of trading the bad and investing in the good.
References: Joel Greenblatt, “The Acquirer’s Multiple”