Selling and holding
The decisions people find hardest, usually because they are being made under pressure.
When should I sell an investment?
When the reason you bought it has stopped being true, not when the price has moved. That is why writing down your reason at purchase matters. Needing the money, or rebalancing back to your intended allocation, are the other legitimate reasons.
Should I stop my SIP when the market falls?
Falling prices are exactly when a fixed monthly amount buys the most units, so stopping then removes most of the benefit of a SIP. The useful question is whether your reason for owning the fund has changed, not whether the price has moved.
Why do I keep holding a stock that keeps falling?
Because while you have not sold, the loss does not feel real, and selling means admitting an error. A useful test is to ask whether you would buy it today at the current price, knowing what you know now. If the answer is no, what you originally paid is not a reason to keep holding.
Should long term investors use stop losses?
Usually not. A stop loss exits on price, while a long term investor should exit when the business changes. A stop on a long term holding would sell during an ordinary market fall at a poor price and leave you deciding when to return.
What is rebalancing and how often should I do it?
Rebalancing returns your portfolio to its intended split after prices have moved it, which forces selling what rose and buying what lagged. Once a year is enough for most investors. Using new money to top up whatever is below target avoids a sale and the tax that comes with it.
Why does a share price fall after good results?
Because the price already reflects what investors expected. If the market expected 30% profit growth and the company delivered 20%, the result is good and the surprise is disappointing. Prices respond to the gap between expectation and outcome.
How long is long term investing?
For tax purposes, listed shares and equity funds become long term after 12 months. For the approach to work as intended, a horizon closer to seven to ten years and beyond is more realistic.
Is a market crash a good time to buy?
Lower prices do improve future expected returns, but nobody can identify the bottom and prices can keep falling for a long time. Continuing a regular investment plan captures most of the benefit without requiring a call. Never borrow to buy a fall and never use your emergency fund for it.
How do I stop making emotional investment decisions?
By removing the need to decide when you are emotional. Automate monthly investing, write down your reason and exit condition before buying, rebalance on a fixed schedule rather than a feeling, check your portfolio less often, and cap position sizes in advance.
What is the biggest mistake new investors make?
Investing before building an emergency fund. Without cash reserves, an ordinary emergency forces you to sell during a market fall, which turns a temporary drop into a permanent loss.
Lessons behind these answers
Company analysis
Judging a business without an accounting degree.
SIP explained
Investing a fixed amount every month, and why it removes your worst decisions.
Investment psychology
Why falling prices make sensible people do foolish things.
Stop loss
Capping the damage from one trade, and where it fails.
Asset allocation
How you split across equity, debt and gold, and why it decides most of the result.
Reading company results
What a quarterly result says, and which four lines matter.