When to sell

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3. Selling for passive investors

Tracker funds

The only time to sell tracker funds is when you really need the cash. Otherwise they should be left to compound as long as possible.

As a passive investor, you should not sell when the market "seems high", because you are not trying to exercise your judgment about whether any given level is cheap or dear. And you should definitely not sell in a falling market. Otherwise you are very likely to miss out on good future returns.

Core holdings

Some companies enjoy enough growth potential to last a lifetime, or even longer.

If you invest a decent proportion of your portfolio in them initially, say 10-15 %, these holdings can grow large enough for you to live off the dividends alone. You need never sell, and may profitably pass them on to your heirs. Of course, they must first be bought at reasonable prices in relation to their earnings!

Among the shares Warren Buffett has named as his "permanent holdings" are Coca-Cola, Gillette and The Washington Post Company.

Typical core holdings have:

• Strong, durable business franchises, e.g. quasi-monopolies or dominance of a given sector
• Valuable intangible assets, e.g. famous brands or patents
• High profit margins
• High returns on equity

They should only be sold if these advantages are irreparably eroded.

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