This post has been on my “topics to write about” list for quite some time and for good reason – I get questions ALL the time from members of the Girl$ on The Money community and students in my investing courses about topics that they THINK a more “experienced” investor might have the answers to.
Well – even with 2 degrees in Finance and nearly 10 years of hands-on investing experience, there are MANY questions I personally still find challenging.
The truth of the matter is that, as with personal finance, investing is also VERY personal. Quite honestly – most of these questions have no “right” answer and it all depends on an individual’s situation.
With that said, in this post I’ll share some of the most common “dilemmas”.
Let’s do it.
When to BUY a stock:
A very famous and I’d say “obvious” quote in the investing world is “buy low, sell high”. Well duh! When we sell a stock or investment for a higher dollar amount than what we paid for it – we make a profit. In a perfect world we would all know when a stock has reached its bottom and we would buy, ride it to the top, sell, and be billionaires.
Well, it doesn’t quite work that way.
It is VERY difficult to time the market or to know with 100% certainty when an investment has reached its lowest point or highest point. With that said, there is no “perfect” time to purchase anything.
As I teach in my stock investing boot-camp for beginners – a good amount of research needs to take place BEFORE adding anything to your portfolio. And so, your decision of when to purchase a stock or investment shouldn’t be based on its price alone.
There is a HUGE difference between price and value and this is actually a topic I look forward to explaining further in a future post.
In the meantime, please know this – the fact that the price of a stock may seem “high” or “low” at face value doesn’t mean anything. What matters is the potential of that company to increase in value over time.
A stock that is worth $25 and considered “cheap and affordable” can linger in the $25 range for a few years before dropping to $15 and then $10. A stock that is worth $250 and considered “too expensive” can increase to $500 and even $1,000+ over time. I am not making up this example. I have seen this happen in REAL life. It all depends on the business behind the stock.
While no one can predict what a stock will do (if someone says they can- run for the hills) – research and analysis can help tremendously in making educated decisions.
When to SELL a stock:
This is another very difficult question that I personally find quite challenging. I love the process of finding amazing companies, doing my research, verifying they are in fact amazing (or not!) and then adding them to my portfolio if warranted. I also love seeing the stock appreciate in value as the time (years) go by which makes the decision to sell quite difficult. Some of you might have heard Warren’s famous quote:
However, we also have to be realistic and know we’re saving and investing for a reason – starting a business, funding college for a loved one, retirement, etc. We’ll eventually need to sell. However, finding the “right” time with stocks that have done well is difficult.
The decision is ALSO difficult with so called “loser” stocks because you then have to figure out if its simply a temporary downturn and perhaps you should be buying more OR whether the company is done for good and maybe is time to sell and move on.
With that said, these are some factors to consider when deciding whether or not to sell something:
- Think about whether your original thesis for purchasing said investments has drastically changed for the worst. The reason why you purchased is no longer valid and you don’t believe the investment will be as successful as you originally thought – it is okay to change your mind if you later find that perhaps your research was flawed.
Or, on a more positive note:
- Your investment has grown to the point where you have too much money and you’d like to re-balance your portfolio and perhaps put some of the money you’ve made with that investment in something else.
Or perhaps life just happens:
- You need the money for a major life event and cannot get the money from anywhere else. You need to sell the investment.
This is by no means a comprehensive list. If you can think of any other reason share in the comments!
Adding to winning positions.
Ok so this might be a “good problem” to have but it does happen! As time goes by and you realize you’ve made some pretty awesome investing decisions with certain stocks or funds – you might be faced with the very real dilemma of whether or not to add to those “winning” positions.
When an investment has appreciated significantly you’ll find yourself very hesitant to buy at the “much higher” price. because you are well aware of how much “cheaper” you got that investment in the first place. Is a tough position to be in.
This is a very real dilemmasI’ve personally dealt with.
While listening to a favorite podcast earlier this year, I heard these words of wisdom which really shifted my perspective on the idea of adding to winners:
David is one of the founders of The Motley Fool and someone I like to call one of my selected virtual “investing mentors”. He has always preached adding to winners but the idea finally clicked for me when I heard those words.
I decided to try out this strategy by taking baby steps with the companies in my portfolio that have not only done amazing but which I ALSO strongly believe will be around for decades to come.
The verdict so far is that adding to winning positions has been one of my best investing lessons of 2018. I’ll let you guys know how I feel by the end of the year or in a few years but so far so good =).
When making this decision for yourself some questions I’d encourage you to explore are the following: (1) Is the thesis behind WHY you purchased that investment in the first place the same or even better than what you originally concluded? (2) Is this company (or companies within the fund) making disruptive positive changes in the world? (3) Is the product/service unique? (4) Does the company have a strong competitive advantage? (5) Are the financials still solid? (6) Do you see this company around and thriving for the next 10, 15+ years? If the answer to MOST of these questions is “yes” you might be onto something.
And that’s all folks! Any dilemmas you personally deal with? Share below or head over to the Facebook group to start or continue to the discussion.
Cheers to profits!
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2 thoughts on “The Investors Dilemmas – Questions Even Experienced Investors Deal With”
I had the same dilemmas. After careful research, I came up with my personal solution: I will continue to buy securities (even winning ones) and don’t sell them within the time horizon I stated in my IPS.