When to Sell
Selling decisions are harder than buying ones because emotion is involved. Written rules made in advance replace improvisation under pressure.
Why this matters for beginners
Most damaging sales happen during panic and most damaging holds happen out of hope. Predefined reasons remove both from the moment of decision.
Main explanation
There are three defensible reasons to sell: the thesis has been disproved, the price has moved far above any reasonable estimate of value, or a better use of the capital exists.
A falling price alone is not a reason. Nothing about your original reasoning has changed simply because the quote is lower.
Write the disproving conditions when you buy. Naming what would prove you wrong turns selling into a check rather than a judgement call.
Consider tax and transaction costs, and beware of selling winners early while keeping losers to avoid admitting a mistake.
Example using a real company
If you bought a company for its expanding margins and margins have fallen for three consecutive years, the thesis has been disproved regardless of the price.
- →Valid: the reason for owning has been contradicted by results.
- →Invalid: the share price fell twenty percent with no change in the business.
Common beginner mistakes
- ✕Selling because of a price fall alone.
- ✕Holding losers to avoid admitting an error.
- ✕Never writing down what would disprove the thesis.
Key terms
- Thesis
- The written reason for owning a holding.
- Disproving condition
- An outcome that would prove the thesis wrong.
- Disposition effect
- The tendency to sell winners and keep losers.
Key takeaways
- 01Sell when the thesis breaks, not when the price falls.
- 02Write disproving conditions at purchase.
- 03Watch for holding losers to avoid admitting mistakes.
Check yourself
- 01A falling price by itself is a sound reason to sell.
- 02Writing disproving conditions at purchase makes selling more objective.
- 03The disposition effect describes selling winners while keeping losers.
Try the concept on a real company
Use the bear case in the Analyzer to draft the specific conditions that would end your reason for owning a company.
Educational examples only. Not buy or sell recommendations.