When to sell

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16. Emotional problems

To understand the arithmetic is one thing, to act on it quite another. However much you accept the validity of this selling rule intellectually, it is virtually certain you will not take it to heart until you have broken it several times in practice and suffered the consequences.

What compels you to snatch your profits and keeps you from selling your losers? Your emotions. In particular, your misplaced hopes and fears

• You fear that your profits may turn into losses, when you should hope for more to come.
• You hope that your losses will eventually be converted into profits, when you should fear worse to come.

There is no reliable solution to these problems other than experiencing for yourself that things do not usually turn out as you hope or fear. Even then, this will only be of help if you allow yourself to learn from experience.

Reluctance to admit to our mistakes is all too human. But you have to overcome it whenever you enter the stock market. As trader Jesse Livermore once said:

"If a man is both wise and lucky, he will not make the same mistake twice. But he will make any one of the ten thousand brothers or cousins of the original."

Thus the best you can hope for is not to avoid mistakes, but only to minimize the damage they do to your portfolio.

Succeed in that, though, and there is every chance you will prosper in the end.

1. When should you sell? 2. What is your overall strategy? 3. Selling for passive investors 4. When to take profits as a value investor 5. When to take losses as a value investor 6. Selling for growth investors 7. Mechanical formulas for selling 8. Selling in order to reinvest 9. Stoplosses 10. The argument over stoplosses 11. Limitations of stoplosses 12. Profit warnings 13. Selling for traders 14. William O'Neil's trading system 15. The most important rule of all 16. Emotional problems 17. Conclusion