Phaedrus
27-07-2004, 11:45 AM
Viewed objectively, these two actions should be equal, opposite and "value neutral" - but we all know that this is not so.
Buying is a very positive action, one accompanied by high expectations, feelings of optimism and hope. Buying solves the problem of what to do with a spare sum of money - many people are decidedly uncomfortable holding cash and are only happy when fully invested. Buying opens the possibilities of great things. Buying feels good, that's why we like to do it. When we buy a new stock we are quite objective - we have no vested interest in it.
Selling is very different. When we come to sell we are no longer objective - we have financial and emotional ties to the stocks we hold. The point at which we sell defines exactly how much we made or lost on the transaction. Selling is when we are forced to face the outcome of a historical decision we made when in a particularly positive frame of mind. Selling closes out the possibility that you might make a bit more, or that you may, yet, get your money back. The mind games are over and we must face the reality of the outcome of our original decision. If we are selling at a loss, this is a painful experience. Even selling at a profit is uncomfortable. Invariably, you will always have been able to sell earlier (or later) for a higher price. Win, lose or draw, selling is a time of resignation, acceptance, capitulation. You take a loss, or you break even after holding for a time or you accept that this is as much as you are going to get from this stock. Selling does not feel good - certainly not as good as buying. No wonder people put it off. In extreme cases, they may resolve never to sell. People can go to astonishing lengths to avoid selling. I read of a disgruntled shareholder at the CAH special meeting last week saying that he was happy to see the share price revive to the amount he paid 19 years ago. Is this patience, stupidity, or irrational optimism? I believe it is simply an extreme case of aversion to selling at a loss - the protection of a fragile ego.
There are any number of books giving endless advice on the selection of stocks and buying - far fewer on selling. Brokers are unbelievably reluctant to use the Sell word - they flag stocks as "Underweight", "Hold", "Market Performer" etc - all euphemisms for the rude four letter word "Sell". Note the frequency and pride with which people post their "buy" decisions on ShareTrader. Selling seems to be less popular, perhaps needing to be explained away by "I needed the money". Stock "Buy" recommendations outnumber "Sell" recommendations and discussion. Selling can even be seen as "disloyalty" to a company that "has been good to you". Selling creates the problem "What would I do with the money?"
The thing is, selling requires a total reversal of our thinking. A mental U-turn. Reversing an opinion is even harder if we have publicly and zealously promoted the stock as a good investment. Some find this impossible.
For nineteen long years, that CAH holder has been psychologically incapable of reversing his initial buy decision. He would rather sustain some hope of a future profit than accept the reality of his poor investment. He has consoled himself with dividends for 2 decades and is in profit - will he now sell this poorly performing stock? I think not.
We are indeed our own worst enemies.
This will be my last post for a while. I am going on holiday, returning in October.
Buying is a very positive action, one accompanied by high expectations, feelings of optimism and hope. Buying solves the problem of what to do with a spare sum of money - many people are decidedly uncomfortable holding cash and are only happy when fully invested. Buying opens the possibilities of great things. Buying feels good, that's why we like to do it. When we buy a new stock we are quite objective - we have no vested interest in it.
Selling is very different. When we come to sell we are no longer objective - we have financial and emotional ties to the stocks we hold. The point at which we sell defines exactly how much we made or lost on the transaction. Selling is when we are forced to face the outcome of a historical decision we made when in a particularly positive frame of mind. Selling closes out the possibility that you might make a bit more, or that you may, yet, get your money back. The mind games are over and we must face the reality of the outcome of our original decision. If we are selling at a loss, this is a painful experience. Even selling at a profit is uncomfortable. Invariably, you will always have been able to sell earlier (or later) for a higher price. Win, lose or draw, selling is a time of resignation, acceptance, capitulation. You take a loss, or you break even after holding for a time or you accept that this is as much as you are going to get from this stock. Selling does not feel good - certainly not as good as buying. No wonder people put it off. In extreme cases, they may resolve never to sell. People can go to astonishing lengths to avoid selling. I read of a disgruntled shareholder at the CAH special meeting last week saying that he was happy to see the share price revive to the amount he paid 19 years ago. Is this patience, stupidity, or irrational optimism? I believe it is simply an extreme case of aversion to selling at a loss - the protection of a fragile ego.
There are any number of books giving endless advice on the selection of stocks and buying - far fewer on selling. Brokers are unbelievably reluctant to use the Sell word - they flag stocks as "Underweight", "Hold", "Market Performer" etc - all euphemisms for the rude four letter word "Sell". Note the frequency and pride with which people post their "buy" decisions on ShareTrader. Selling seems to be less popular, perhaps needing to be explained away by "I needed the money". Stock "Buy" recommendations outnumber "Sell" recommendations and discussion. Selling can even be seen as "disloyalty" to a company that "has been good to you". Selling creates the problem "What would I do with the money?"
The thing is, selling requires a total reversal of our thinking. A mental U-turn. Reversing an opinion is even harder if we have publicly and zealously promoted the stock as a good investment. Some find this impossible.
For nineteen long years, that CAH holder has been psychologically incapable of reversing his initial buy decision. He would rather sustain some hope of a future profit than accept the reality of his poor investment. He has consoled himself with dividends for 2 decades and is in profit - will he now sell this poorly performing stock? I think not.
We are indeed our own worst enemies.
This will be my last post for a while. I am going on holiday, returning in October.