The Hindu Business Line : Overcome the fear of selling

Bholu the black bear was back! And how ferocious he was turning out to be! He was clawing at everybody in sight. The pigs were being mercilessly slaughtered while the sheep and the lambs huddled together in fear. The lone creature in the circus who seemed unfazed by everything was Rita the crow. She was happily flapping her wings without a care in the world.

And why not? When all about were licking their wounds, she had managed yet again to fly away with her riches before the bears raised hell. A few lambs which had escaped slaughter mustered the courage to approach her to seek enlightenment on how she did it.

The leader of the group started, “Rita, we barely managed to escape annihilation and all the prey we thought would be ours is gone. We are now living in fear of tomorrow.”

“It is just not fair. Don’t you agree they should do something about the bears? They go into hibernation and attack when you from behind,” came the chorus

“Wrong,” answered Rita. “You just do not stop to think and easily get carried away and become blinded when you see a fast run-up. The bears are always on the look out for the kill. They just wait when the rest of the animals are at their vulnerable best and move in for the kill.”

Give the taxman his due

“Why do you always look to overload your plates. When your plate is full, leave the crumbs for the others and just run with what you have. Else (as you have possibly experienced now), you will even lose what you have on your plate.”

The fat lamb stepped forward, “But if I sell, I lose a major portion of my profits to the taxman.”

“As the old saying goes, pay to Caesar what is due to him. You get to pocket the balance.”

Someone thrust forward a portfolio of stocks for Rita to review. “Alright, I can see that you have these eight stocks in your portfolio which are more or less at the same level at which you invested in. Considering that the stocks are not moving, why don’t you sell those and redeploy the funds in some other stock?”

“But then why should I sell when I have not made profits? And considering that the stocks have not come down, there is nothing wrong with the investment decision,” came a quick retort. “If I sell out now, I will simply lose out on the brokerage.”

Stop the bleeding

Rita frowned as she ran through the rest of the portfolio. “So, what about these 20 stocks — they have all come down substantially from your entry prices.”

“Oh, they are my long-term investments,” came the rather sheepish reply.

“What? But what is your rationale?”

“Well, if I sell now, I will make losses.”

“So what? You have anyway made a loss. What I am asking you to do is to crystallise your loss and stop the bleeding.”

Rita continued, “You are not going to see those stocks going up just because you hold them or because they commanded a high price a few years ago.”

“What you need to understand is that when the rationale behind which you purchased a stock is no longer valid, then you need to get out of the stock.”

The lambs wore a puzzled look.

Rita’s face showed her frustration at their complete absence of logical thinking.

“Do you realise what you have said now?”

“You will not sell a stock when you see profits because you have to pay taxes, you will not sell a stock when it is not moving and, finally, you will not sell a stock when you see a loss.”

Redeploy effectively

“The difference between you and me is that I seek optimum returns from the money I invest in the market. I have no hesitation in taking profits when I see that the probability of the market coming down is high. Further, when some of my investments do not move, I will immediately look to redeploy my money elsewhere. This is because all of us have limited amounts of capital and we need to ensure that it is effectively deployed.”

“See, the trouble is that there are plenty of people who proffer you with buy advice. And nobody to tell you to sell, especially when the party is over”.

“If you want to consistently profit out of the market, what you need to understand is that you need to spend a lot of time in preparation. Before you commit money to the market, what you need to do is to determine the potential risk and reward and ensure that you are comfortable with it.

“Ideally you should prepare a trading plan which is nothing but a guide to ensure that you do not go down the wrong path.” Rita concluded.

Racy@TheHindu.co.in

http://Racycases.blogspot.com

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Overcome the fear of selling