The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

WHY SELL?

The markets inhale and exhale. They get a full chest of air and push it out. They must fall just as certainly as they must rise.

To live happily in the markets, you need to get in gear with their rhythm. Any beginner buying stocks knows how to inhale. Knowing when to exhale—when to sell—will set you above the crowd.

We buy when we feel optimistic—or are afraid of missing a good thing. Perhaps you read a story about a new product or heard rumors of a merger. Maybe you ran a database scan or found a promising chart pattern on your screen. You go online or call your broker and place an order to buy. You receive a confirmation—you own the stock. Now the stress begins.

If the stock stays flat and goes nowhere, you feel restless. Did you pick the wrong one again? Other stocks are going up—should you sell yours?

A rising stock creates a different kind of anxiety. Should you take profits, add to your position, or do nothing? Doing nothing is quite hard, especially for men, who are told from childhood “Don’t just stand there, do something!” When your stock drops, you feel pain—“I’ll sell as soon as it comes back to even.”

For many, the most psychologically comfortable position is a slight decline in their stock. It is not sharp enough to be painful, and with the stock near your entry price, there is probably not much reason to sell. No action is required, and you have the perfect excuse to do nothing.

Throw a frog into a pot of hot water and it will jump, but if you ...