fi nancialforum Sell Discipline I
Have a Strict Plan Your sell discipline should be just as rigorous as your stock selection pro- cess. Determine up front your reasons for selling, and stick to that plan to help you maintain a strong portfolio.
46 MILITARY OFFICER DECEMBER 2011
It’s important for investors to defi ne up front reasons for selling investments to minimize portfolio problems. By Lt. Col. Shane Ostrom, USAF-Ret., CFP
If you’re an investor, you need to have a strategy that determines when you will sell an investment — a “sell discipline.” I’m not suggesting you become a trader, but there will be times when you need to sell an investment, and you should identify the conditions that would cause you to sell. Why is a sell discipline so important?
Some investments will go bad for various reasons and lead investors down a hole where they can’t recover. A sell discipline lays out the exact reasons you will sell an investment so every sell is based on a calculated decision designed to minimize portfolio problems. Investing isn’t a fl y- by-the-seat-of-your-pants operation. As surely as you had a reason to purchase an investment, the same holds true for selling it; it’s about having a well-rounded invest- ment game plan. Without a sell discipline, you can be- come emotionally tied to an investment and therefore be reluctant to sever the re- lationship even when it turns harmful. Why would you refuse to cut loose
some investments? Maybe you are fond of the company, the investment was a gift, you’ve owned it for a long time, or your emotions tell you it will come back. Forget all that. There is never a good emotional reason to hang on to a bad investment. A prime reason to sell an investment is it has stopped being the vehicle that served your original purpose. Perhaps you bought a particular mutual fund because it was a conservative stock port-
folio, but the fund changed to a more ag- gressive strategy. Have you ever bought a mutual fund and the leadership changed? This could be a good reason to sell if the performance lags over time due to inef- fective management. Another situation when you might sell is to harvest profi ts after a substantial increase in value. In this case, a partial sell might be the best course of action. Sell after a substantial decrease in value to minimize downward swings in your portfolio. Set a limit on how much of a percentage decrease you are willing to sustain. Sell on negative changes in the fundamental fi nancial condition of the investment — when the investment is in trouble. Sell if the investment becomes overvalued, meaning it’s too expensive given its worth. All these can be valid rea- sons to sell an investment. You also should fi nd out the sell disci-
pline of your investment advisor. Trades have outcomes — commissions, taxes, and allocation changes. Keep in mind, a price decrease alone
is not reason to sell. If the price is going down, there is no valid reason to sell, and the fundamentals are still good, keep it and buy more as the price drops.
MO
— Lt. Col. Shane Ostrom, USAF-Ret., is a CFP® in MOAA’s Benefi ts Information and Fi- nancial Education Department. To speak with a fi nancial planner, contact USAA at (877) 913- 6622 or
www.usaa.com/moaa, or visit www
.moaa.org/fi nancialcenter for other resources.
PHOTO: SEAN SHANAHAN
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88