Before you buy a share you have a choice of whether to buy. Once you buy a share you need to make more decisions. Far more.

For example if you bought 50000 shares of Cholamandalam at Rs. 55 in say 2008. The question you have to keep asking is

a) why did you buy? – well i bought it because I knew that the dividends will be stepped up to Rs. 5 per share and I would get a 10% yield after a few years.

b) at what price will you sell?

c) at that price HOW many shares will you sell?

Suppose I had said every time it doubles I will sell 10%.

I had used this rule when I bought Mazda Industries at Rs. 10.65. I abandoned the rule when it crossed Rs. 1000 in a year’s time, but by then I had sold a lot.

Now Chola doubled to say Rs. 110, I would have to sell 5000 shares.

Then at 220, I would have to sell 4500 shares

Then at 440, I would have to sell 4000 shares (I am rounding off)

Then at 880 I would have to sell 3600 shares

Then at 1250 I would still be holding 38000 shares. This is surely not a bad way of holding on to a good company.

Also remember this will work only if you are willing to buy a reasonable quantity at the start of the journey. Suppose I had bought 5000 shares in 2008. Then I would be holding about 3800 shares – and there will be more inertia to sell and a feeling of FOMO (FEAR OF MISSING OUT) which would have held me back from selling.

Buying Low and Selling High. Sounds easy? Well for me buying has been far easier. I bought Apollo Hospital at a sub par price of Rs 9.50 because they had just declared a 10% dividend. It looked good. I had no sell discipline and sold off at 135. Not bad at all – a 15 bagger almost. I sold because I felt that a hospital cannot go much beyond that. Wrong completely wrong. It then went to 1500. Now of course it is down to 1000.

If you let your emotions let you decide when to sell, you are likely to fall in love with companies far beyond their useful life. I am happy that I did not sell Hindustan Oil Exploration in a hurry – still holding – having bought from 34 to 44. I am happy that I did not sell all Tata Steel bought at 200. And I am still holding Tata power bought at 69.

I did realize that I bought these commodities at historic lows, and these had to be sold at 3x of 5x the cost, not just at every 10% jump. Stuck to that. I have Coromandel International bought at some ridiculously low price and still holding.

So when should you sell:

a. When you need money. No doubt about that.

b. When you spot a better share which will give better returns – If I spot a Rs. 10 share today and see it as a multi bagger in the future I might sell some of my older shares (Chola, Coro, Eid parry, Nestle….) to fund this new share. If I have cash, I would first use that..

c. When you see bad results and the management telling you lies about it.

d. When you hear some bad news. I had GMR bought at 71. Sold it after 2 days at 69.

So there are no hard and fast rules….but it is necessary for you to make the rules – and create exceptions once in a while.

No. Not easy.

Anybody who told you investing is easy, told you a lie.

 

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