These Are The Only 3 Reasons To Sell A Stock

Summary

The video discusses the importance of knowing when to sell stocks, emphasizing that while buying is crucial, timing the sale can be just as vital. Using examples like Netflix, Meta, and Tesla, the speaker highlights how even high-quality companies can result in losses if sold at the wrong time. The video outlines key reasons to sell stocks, such as changing investment theses, overvaluation, or better opportunities elsewhere. It encourages investors to focus not just on buying but also on selling strategies, citing Warren Buffett’s advice on holding stocks long-term.

Takeaways

• 📈 Netflix and Meta have shown high growth over the past 5 years, but investors could still lose money if they panic and sell during market downturns.
• 💼 Holding stocks through market turmoil is key to realizing long-term gains, as Netflix, for example, would have provided a 56.88% return if held until today.
• 📉 Selling at the wrong time, such as during subscriber losses or earnings slowdowns, can result in significant losses, even with strong companies like Netflix and Meta.
• 💡 Retail investors often focus more on when to buy stocks rather than when to sell, which can lead to poor decision-making.
• 📊 A study showed that 80% of retail investors spend most of their research time on buying, while only 0-30% dedicate time to researching when to sell.
• 🔑 Timing when to sell is crucial, even with high-quality stocks, to avoid losses. Money is only made once the stock is sold.
• 📉 Common reasons to sell include changes in the investment thesis, unrealistic valuations, better opportunities elsewhere, acquisitions, portfolio rebalancing, and personal financial needs.
• 🏦 A personal example involved selling a company that shifted its cash into Bitcoin, leading to volatility, highlighting the need for comfort with investment strategies.
• 📊 Valuation discrepancies, like Tesla's high P/E ratio, can lead to underperformance, even if the company's fundamentals improve.
• ⏳ Holding stocks for the long term increases the likelihood of making money, as data shows the longer you hold, the higher the probability of gains, with a 100% chance of profit over 15 years.

Q & A

What is the main theme of the script?

The main theme of the script is the importance of knowing when to sell stocks in addition to knowing when to buy, highlighting that even great companies can lead to losses if sold at the wrong time.

Why does the script emphasize researching when to sell stocks?

The script emphasizes researching when to sell because most retail investors focus heavily on buying, but the timing of selling is equally critical. Poor timing on selling, even in quality stocks like Netflix or Meta, can lead to significant losses.

What example does the script provide to show how investors could lose money despite choosing great stocks?

The script provides examples of Netflix and Meta. It shows that despite their strong performance, investors could have lost up to 60-70% of their positions if they sold at the wrong time during periods of market downturns or backlash.

What are the top three reasons for selling stocks according to the script?

The top three reasons for selling stocks mentioned in the script are: (1) when the investment thesis has changed, (2) when valuation does not reflect reality, and (3) when better opportunities exist elsewhere.

What is an example given for when the investment thesis changes?

The script provides an example of a company that converted all its cash to Bitcoin. The speaker decided to sell because they were not comfortable with the new strategy, and Bitcoin later crashed, justifying the sale.

What does the script mean by 'valuation does not reflect reality'?

This refers to situations where a stock’s price is inflated compared to its actual value. Tesla is used as an example, where despite the company’s growth, the stock price had limited upward movement because it was already overvalued.

How does opportunity cost factor into selling decisions, according to the script?

Opportunity cost refers to the potential gains missed by holding onto one stock while better opportunities exist elsewhere. The script gives an example of selling Crocs to buy Meta, which would have led to better returns.

What does the script say about long-term holding of stocks?

The script explains that the longer you hold stocks, the higher the probability of making money. It provides statistics showing a 100% chance of making money if you hold the S&P 500 for 15 years.

What investing strategy does the script recommend for long-term investors?

The script suggests following the strategy of Warren Buffett and Charlie Munger, who prefer holding stocks long-term, potentially forever, while continually monitoring their fundamentals.

How does the speaker personally approach selling stocks?

The speaker tracks the performance of their holdings and decides to sell if fundamentals deteriorate or if better opportunities arise. In some cases, they set a future time point to reassess their positions.