There are a variety of tools available to every individual investor, especially in the digital age of the internet. Extensive stock research that was once only accessible to institutional investors is now just a click away to the little guy. However, I want to discuss an essential weapon that everybody has yet under-utilizes terribly: selling.
I think Wall Street has brain-washed the public into believing that selling is evil and that your money should always be fully invested. Of course they don’t mention that they collect more fees this way as well, but we won’t get into that. I don’t see any reason why one must always sit tight and not sell if he sees danger ahead.
Out of Commission
In the past, commissions on stock trades were ridiculously high and played a large part in buying and selling decisions. Today, this is no longer the case with the advent of the internet and online trading. For just a few bucks or even less, you can trade thousands of shares with the click of a mouse. For most people, this shouldn’t affect your strategies too much.
When the tone of the market is decidedly bearish, it pays to move into cash and let the carnage play out. There is no rule saying you have to be invested during this time. The great thing about being a small investor is that buying back in is so easy and can be accomplished within seconds.
Big institutions like mutual funds and pension funds do not have this luxury since they are dealing with billions of dollars. They must sell their shares in pieces so as not to kill the market price of the stock, which would hurt their returns. Basically, they can’t jump in and out of stocks with large dollar amounts.
I am not saying it is bad to hold stocks for the long term, but I want to get the point across that selling is an important tool in your arsenal and can save you a lot of money during bear markets. Unlike institutions, you can get right back in if you see fit. Being in cash during turbulent times is extremely refreshing and allows you to be more objective so you can create a shopping list when times improve. The bottom line is not to be a hostage to the fallacy that selling is wrong.
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