Why I Sold My Facebook Shares
In this weeks blog post I discuss the reason why I sold all my Facebook shares. I also provide a couple other scenarios that would warrant the sale of stocks. While there are many other reasons why I sell stocks, the list provided below encompasses some of the most important reasons. I recognize there are a number of you who may not own individual stocks, so please know that when I say "stocks" I am also referring to all other types of investments, such as ETFs or mutual funds.
Three Reasons Why I Would Sell Stocks
Let me begin by saying that I really enjoy using Facebook's social media platform, which includes Instagram, Facebook, WhatsAPP and Messenger. I find these social platforms extremely beneficial, and use each one of these applications in my business. That being said, I make a conscious effort to abide by the rule of NEVER falling in love with any stock that I own. Hence the fact that while I really love using Facebook's social media platform for my business, I was 100 percent comfortable selling the stock when the fundamentals in which I purchased the stock had changed. Here are three reasons why I would sell a stock:
1. The Business Fundamentals Have Changed
If the business fundamentals have substantially changed since you purchased a stock, then it may be time to either sell ALL or a portion of your stock. Business fundamentals are the underlying qualities and information required to analyse a stock, and include such things as balance sheet, cash flow, income statement, overall management, and things that affect a company at large (regulation, unemployment, supply and demand issues etc.). When the fundamental reasons that you purchased a stock change, then it may be time to sell your position in a stock.
One questions that I ask myself when a company I own is going through major problems is this: "Would I buy that same stock today given the fundamental issues they are encountering today?" If the answer is yes, I hold onto the stock. If the answer is no, then I sell the stock.
2. The Stock Has Gone Too High Too Fast
Another reason I sell a stock is if it has gone up rapidly in a short period of time. In this case, I make sure to sell my stocks to capture the gains of the rapid price increase. This may seem like a no-brainer, however, you would be amazed at how difficult it is to sell a stock that has been on a rapid trajectory upward. It's easy for people to want to hold on a little bit longer for more gains. However, that could potentially result in more pain if the stock moves down at a rapid pace.
In this scenario, please resist the temptation to hold on for too long, and sell your stock at a handsome profit.
3. The Stock Has Gone Down By 10%
Another criteria that I use to determine if it's time to sell my stocks, is I will automatically sell a stock that goes down by 10%. In this scenario, I limit my losses by ensuring to not hold onto a stock that is a losings stock. While my comfort level may be a threshold of 10% on the downside, others may choose to sell stocks that go down by less or more, depending on their tolerance for risk.
Whatever you do, don't make the mistake of holding onto a losing stock past a reasonable threshold, as you run the risk of potentially losing ALL your money in the event of a bankruptcy and insolvency case.
Years ago I owned a company named Sino Forest that was a high flying lumber company. Unfortunately, shortly after buying the stock (about 10 days later), it was discovered that this company engaged in fraudulent activities, and the common stock proceeded to decline by 50%, and then declined even more in a matter of days. I was one of the fortunate few who was able to sell the stock before it was delisted. While I took a loss, it wasn't nearly as bad as for the folks who held onto the stock until the bitter end. (Those folks ended up seeing the stock go all the way down to zero).
It pays to pay attention to your portfolio. Make sure to sell losing stocks before they can affect your bottom line.
Facebook fell into the first category, and as such, I sold all my Facebook shares. Namely, Facebook is facing the very likely possibility of regulatory changes that will impact the way it capitalizes on users data, and as such, this will impact it's bottom line. Since this is a fundamental change in the company that will affect shareholders Return on Investment, I sold all my shares.
Stay tuned for some exciting posts coming your way soon! I will be providing a review of the book titled "Burn Your Mortgage", by Sean Cooper, and will also be bringing you the results of a recent survey conducted for MNP related to the likelihood of respondents to claim for bankruptcy, in the current changing interest rate landscapte.
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