The Art of Selling Smart: A Strategy for Every Market
This week, I had a pleasant surprise in my personal portfolio. One of the limit orders I placed before Thanksgiving triggered and sold a stock I’ve owned for almost three years. The decision to sell was simple for me—I had lost conviction that the stock would outperform the overall market. I picked a price I’d be very happy to sell, and the plan worked.
Sell discipline is a critical component of an overall strategy. If you’re going to take on more risk than owning an index fund by holding individual stocks or sector funds, maintaining the discipline to sell those investments becomes essential. At Sevey Wealth, we follow a clear set of rules to guide sell decisions, ensuring they are rational and aligned with each client’s financial goals.
What sets Sevey Wealth apart is our recognition that real life isn’t a textbook. Financial planning textbooks present clean, idealized case studies, but the lives of our clients are often far more nuanced and complex. That’s why our approach is tailored, flexible, and grounded in the reality of each individual’s unique circumstances.
Here are the six principles we use to maintain sell discipline:
Loss of Conviction
When we lose conviction that an investment will outperform the overall market index, it’s time to sell. This can happen when the original thesis behind the investment no longer holds, whether due to industry trends, company fundamentals, or broader market conditions.
Material Change in the Underlying Company
A significant change in the company—like a leadership shake-up, a sudden drop in earnings quality, or new regulatory challenges—may alter its outlook enough to justify selling.
Better Opportunity Elsewhere
Investing is about maximizing opportunity. If a better option arises—something with stronger growth potential or a more favorable risk-adjusted return—it might make sense to reallocate funds to that opportunity.
Loss of Sleep
Sometimes, it’s not about the numbers but the emotions. If a stock is causing undue worry or sleepless nights, it’s worth reassessing. A stressed investor is less likely to make sound financial decisions.
Execution Strategies: Limit Orders and Covered Calls
We use strategies like limit orders and covered calls to ensure precision and discipline in executing sales. These tools allow us to predefine acceptable sell prices or generate income while maintaining flexibility.
Cash Flow Considerations
Sometimes, the decision to sell is straightforward—clients may need the money for a planned expense, or a shift in life circumstances might call for increased liquidity.
Other Considerations:
Tax Avoidance is Not A Reason to Hold
Tax considerations are often cited as a reason to avoid selling an investment, but at Sevey Wealth, we believe this is a flawed perspective. For example, holding onto a stock to save on taxes could cost far more if that stock loses significant value—consider that a 30% drop in value dwarfs most tax rates. As we say, "The market will tax you way more than the IRS ever will." While we strive to manage taxes efficiently, our primary focus remains on optimizing the portfolio and preserving long-term growth.
Reinvestment Strategy
Selling an investment is only half the equation; deciding what to do with the proceeds is just as important. At Sevey Wealth, we emphasize the importance of having a reinvestment plan that aligns with the client’s overall strategy, whether that means deploying the funds into a new opportunity, increasing diversification, or holding cash for strategic flexibility.
Behavioral Biases
Emotional and psychological barriers often influence sell decisions, and one of the most common is the fear of missing out (FOMO). This can lead investors to hold onto stocks, hoping they’ll return to a previous high, or to avoid selling a poorly performing stock because of emotional attachment. At Sevey Wealth, we help clients cut through these biases with a disciplined framework that emphasizes rational, goal-oriented decisions. Remember, selling at the right time isn’t about FOMO—it’s about keeping your portfolio aligned with your long-term objectives.
Market Timing
It’s important to note that sell decisions are not attempts to “time the market.” At Sevey Wealth, we make sell choices based on thorough analysis and alignment with the client’s financial goals, not speculation about short-term market movements. This approach ensures that actions are strategic and not reactionary.
Long-Term Perspective
Every sell decision is made within the context of the client’s long-term financial plan. Our primary objective is to ensure that the portfolio continues to support their broader wealth-building and lifestyle goals, even as individual investments are bought and sold.
Concentrated Stock
Concentration risk often raises questions, but it’s not a standalone reason to sell. Depending on the stock’s outlook and the client’s financial situation, a concentrated position can sometimes be strategic. However, we approach this with caution, ensuring that the risks are well-understood and justified.
Conclusion
Sell discipline is more than a reactive process—it’s a proactive, rules-based approach to managing risk and optimizing portfolios. By following these principles, Sevey Wealth helps clients stay focused on their long-term goals while navigating the complexities of investing.
If you’d like to learn more about how Sevey Wealth can help you make informed, confident decisions in your portfolio, we invite you to contact us. Let’s create a plan that works for your unique financial journey.
