Selling

Why selling is harder

Buying is forward-looking and optional. Selling confirms something. Selling a winner confirms a gain and removes the possibility it goes further. Selling a loser confirms a loss. Loss aversion makes the second confirmation painful, so investors systematically sell winners too early and hold losers too long. That pattern has a name — the disposition effect — and it is one of the most replicated findings in retail brokerage data.

A perfect entry is worthless if you sell in panic at minus 30 per cent. An ordinary entry is profitable if you hold a genuine compounder or exit when the thesis breaks rather than when you finally admit it has broken.

Four legitimate reasons to sell

• The thesis is broken. The falsification condition you wrote has been met.
• The planned exit has hit. Price target, time stop, or rebalancing band.
• You need the money. A real spending or liability need, not boredom.
• Risk has concentrated. The position has grown past the size rule you set.

Common bad reasons: it hurts to look at, you are bored, someone on a forum said so, or you want to “lock in” a gain because the number feels good. Those are temperament speaking, not process.

Each method has its own exit

This is where people drift. A value position is sold when the discount closes or the business thesis breaks, not because a moving average crossed. A growth position is sold when earnings decelerate, leadership ends, or the market regime that supported it turns — not when you have finally emotionally accepted the break three months later. A trading position is sold at the pre-set invalidation or target. A passive sleeve is rebalanced or drawn on according to the policy, not because headlines are loud.

Applying trading stops to long-term holdings, or buy-and-hold patience to a broken trading idea, is a reliable way to lose money. Each sleeve keeps its own rules.

Australia adds a layer

Franking credits and capital gains tax change the felt cost of selling. Holding can preserve future franking and defer CGT. That reinforcement is real, and it can keep a deteriorating position in the portfolio longer than the investment case justifies. The tax consequence is part of the decision. It is not a reason to ignore a broken thesis. Check current holding-period and related-payment rules before you rely on any credit.

What to do with this

For each current holding, write the legitimate reason that would make you sell it. If the only reasons you can think of are pain or a tip, you do not yet have an exit rule.