Editor: Crass Cash
When I was in college I wan on the college team and we played a practice round at the local county golf course prior to a tournament. My coach at the time paired me up with a local entrepreneur because he knew I was into business. I peppered him with questions the whole time, but the thing that stuck with me the most is when he told me, "When you go into business with a partner, one of the most important things is the exit strategy." What he meant by that was that if things didn't workout with your business partner you needed to think about how it was going to end mutually before it even started. The same should hold true for investing!
Regardless of the investment, you need to have a reason for buying and a reason for selling. This needs to be done before you ever even invest or trade. You need to have rules for why something is worth buying and under what circumstances it is worth selling. All of this needs to be done and the rationale put down in writing before any trade is ever done. This is true for real estate, stocks, bonds, businesses, and futures.
This can go both ways, whether you make money or lose it. Warren Buffett has said two things about selling. 1. Our favorite holding period is forever.
2. When you realize you made a mistake, selling immediately.
I have done this informally, but after reading the book: WHAT I LEARNED LOSING A MILLION DOLLARS it sunk in deeper. Now you may think that selling has everything to do with price, but you'd be wrong. Many times it can be because of a change in fundamentals. Or the valuation of those fundamentals. One of the dumbest reasons to sell something is just because it went up or down.
But I'm a big believer that when the price of a stock or any investment becomes overvalued on a fundamental basis is when it needs to be sold. Just because it went up doesn't mean that it's overvalued. It also may have acquired more assets, it may have stronger cash flow, or it might be earning more. Will that continue? These are all sorts of things that need to be evaluated. Just because the price goes up though is not one of them.
When you write in your investment journal about why you bought an investment and at what price you equally need to setup a scenario as to what it will be when it comes time to sell. AND THEN STICK YOUR GUNS WHEN IT HITS THAT MARK!
Regardless of the investment, you need to have a reason for buying and a reason for selling. This needs to be done before you ever even invest or trade. You need to have rules for why something is worth buying and under what circumstances it is worth selling. All of this needs to be done and the rationale put down in writing before any trade is ever done. This is true for real estate, stocks, bonds, businesses, and futures.
This can go both ways, whether you make money or lose it. Warren Buffett has said two things about selling. 1. Our favorite holding period is forever.
2. When you realize you made a mistake, selling immediately.
I have done this informally, but after reading the book: WHAT I LEARNED LOSING A MILLION DOLLARS it sunk in deeper. Now you may think that selling has everything to do with price, but you'd be wrong. Many times it can be because of a change in fundamentals. Or the valuation of those fundamentals. One of the dumbest reasons to sell something is just because it went up or down.
But I'm a big believer that when the price of a stock or any investment becomes overvalued on a fundamental basis is when it needs to be sold. Just because it went up doesn't mean that it's overvalued. It also may have acquired more assets, it may have stronger cash flow, or it might be earning more. Will that continue? These are all sorts of things that need to be evaluated. Just because the price goes up though is not one of them.
When you write in your investment journal about why you bought an investment and at what price you equally need to setup a scenario as to what it will be when it comes time to sell. AND THEN STICK YOUR GUNS WHEN IT HITS THAT MARK!
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