Do You Know When’s the Best Time to Sell Your Stocks?
- Rupam Deb
- Jul 11, 2022
- 7 min read
Actually, the best time to sell your stock is… never. Let us tell you why.
Some of the best investors and gurus whom we ardently follow with religious devotion – like Charlie Munger, Warren Buffett, Phil Fisher, and Peter Lynch – taught us to think long term and find and invest in great businesses run by very high-quality management teams.
It is no different from getting into a business partnership with these high-quality management teams, where they are taking up the operational role, and we are playing the role of a passive owner of a slice (however small) of that great business.
As passive business owners, we are pleased to trust these exceptional managers to manage the operations of the business and allocate capital judiciously. We would ideally never want to sell these kinds of businesses.
Behind Every Ticker Symbol Is a Living, Breathing Business
The greatest ‘aha moment’ of our early investor life was when we realised that looking at stocks as businesses was the right way of looking at an investment, rather than looking at it as something to be traded with minute by minute ticker updates. As Warren Buffet once said:
“Shares are not mere pieces of paper. They represent part ownership of a business. So, when contemplating an investment, think like a prospective owner.”
That mentality, of course, involves a lot of conviction once we have identified the business for investment.
It is a level of conviction that does not come overnight.
It is possible to make a quick buck based on some “stock tips” which could turn out to be winners, but it is not possible for everyone to share the same conviction that can be developed over a prolonged period of thorough research.
That is the reason why most investors feel the urge to exit a stock position once it shows some gains since they are only focused on the stock and are unable to bear the possibility of giving back their paper gains due to short term market volatility, like what is happening right now.
This demonstrates the lack of conviction that a passionate business owner typically possesses.
Think Like a Business Owner
Imagine Jeff Bezos deciding to sell his Amazon shares just because the share price has run up, and he is worried that the price might drop subsequently.
For a passive investor, while locking some short-term gains might still end up being a profitable strategy, significantly superior results can only be obtained by letting these great businesses compound wealth over a long period of time, and not worry about the short-term share price movements.
If the business fundamentals remain strong, the stock price will reflect that over time.
The real great businesses are those that, along with generating excess returns from the operating business, also allocate the capital which is not being reinvested back into the operating business.
Compounder #1
Recently, we released a deep-dive research report into Singapore-listed fintech firm iFAST Corporation (SGX: AIY) for our Multibagger Research Series (MRS) subscribers. Even though it’s a local company, it has global ambitions.
We (Rupam and Sudhan to be specific) personally own part ownership in this compounder. Rupam first bought its shares in iFAST in 2018 and has held on to the company judiciously ever since. And this is even though the many ups-and-downs as Mr Market was throwing his tantrum. Likewise for Sudhan who first bought iFAST shares in 2017.
In fact, Mr Market’s panic has many times given us golden opportunities to buy more shares in the business at a cheaper price, like in March 2020.
Then when iFAST shares shot up from around S$0.80 each in April 2020 to a peak of close to S$10 in September 2021, we didn’t sell our stocks either.
Based on the current available facts, we feel good about being part-owners in iFAST. We will only sell a business like this if we notice some permanent, fundamental issues or if some significantly better alternative is available.
On hindsight, one can argue that selling the stock at S$10 per share would have been a great decision, but that would have come with reinvestment risk.
Firstly, there was nothing wrong with iFAST’s business fundamentally, and we felt good about its long term prospects.
Secondly, selling the shares would have only made sense if we could reinvest the sales proceeds in an alternative idea that would have generated a higher expected return (guaranteed to) than what we would have expected from holding onto iFAST.
At that time, we did not have any such alternative idea. Selling the shares with the expectation that markets will correct (as it actually has) would be “timing the market”. In this instance, we would have gotten lucky, but over time trying to “time the market” has proven to be a suboptimal thing to do.
On the other hand, the long-term compounded return that we expect from iFAST (including the tax-exempt dividends) is very satisfactory to us.
That similar rigour in research is also what we have provided our MRS subscribers in our deep dive into iFAST’s business. Our conviction also grew after talking to management during iFAST’s earnings briefings and analyst meetings that they conduct regularly.
Speaking of management, we recently organised an Ask-Me-Anything (AMA) session for our MRS subscribers to ask any iFAST-related questions to its senior management team. The event was well-received and those who attended learnt a lot more about the company from the “insiders” themselves. A total of 18 insightful questions were covered.
MRS subscribers can now access the recording via our platform.
For those of you who would like a free preview of the iFAST deep-dive report that’s only available to MRS subscribers, you can check this out:
The full report, including the valuation, is available only for our MRS subscribers. If you are not yet a subscriber, then this would be a fantastic time to subscribe considering the number of businesses that we have covered under MRS (the most in-depth research you will find anywhere). You can subscribe here now.
We are putting the finishing touches on our research into Canadian multinational e-commerce company Shopify (NYSE: SHOP) (TSE: SHOP), and we will also be releasing the research soon.
But here’s a sneak peek for those who can’t wait…
Shopify’s business has benefited from the e-commerce boom globally since the Covid-19 pandemic. But recently, its share price has crashed by about 80% since its peak in November 2021, and Shopify’s CEO (Tobi Lutke) and President (Harley Finkelstein) announced publicly on 11 May 2022 their intentions to buy Shopify’s shares personally.
We have dived deep into Shopify’s business to see if it is a strong business and whether the current price is attractive, and found many good points about Shopify, for example:
Its clear leadership within the e-commerce platform space, and its unique differentiation from its competitors from a product standpoint and its go-to-market strategies;
Certain e-commerce trends, like multi-channel selling, that put Shopify in an excellent position to benefit from the future of e-commerce, given Shopify’s current strategy;
Its various moats and competitive advantages that would help it to fend off competition in the future, and Shopify’s proactive efforts in strengthening those moats even further; and
Its strong financials, including its operating leverage, etc.
However, we have also discovered certain not-so-good things about Shopify that we don’t like and would like to monitor more, which we have discussed in detail in our MRS research.
We will update our MRS subscribers accordingly once we have released the research.
Oh, by the way, we are working on another research into a well-established technology company with a wide economic moat and high amounts of recurring revenue and free cash flow. We will update you about this company in our subsequent communications.
Earnings Updates and Twitter Threads
We also released earnings updates on some of the companies we cover. Do check out our blog posts below to know more:
Over at our Twitter (our handle is @MoneywiseSmart), we have started doing Twitter threads to deliver more value to our followers (do follow us if you haven’t been notified of our threads). Here are three highlights from our Twitter account:
The 007 Strategy
Businesses often issue a bond to raise debt capital. There are smart ways of raising debt using bonds and there are risky ways. Retail investors usually don’t have access to such cheap capital, at least that is what the common narrative is.
What if we told you that you can issue bonds using an option strategy to raise capital in a very safe way?
What if in the current market conditions, there is a way to have access to any block of capital (using this strategy) at a fixed cost of less than 3.5% per annum, for a fixed period of five years?
And the best part is that it’s extremely margin efficient.
No wonder this strategy is the ‘James Bond’ of all bond strategies, so we have named it the “007 Strategy”. Imagine the lollapalooza effect of using this cheap capital to invest in businesses generating an upward of 20% return on capital!
Free Resource: Learn to Generate Cash Flows When You Need it the Most
There are many discounted opportunities available in the stock market right now. But one stumbling block could be the lack of cash to take advantage of them.
Fret not!
At our Option Series Program [Free Preview], we teach you how to generate cash when you need it the most.
In the course, you will learn:
Ways of using options to fund your long term investments
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