September 26, 2025
This is a subject requiring more explanation than can be comfortably put into 1000 words. So, the piece today will outline the problem and then we’ll discuss solutions to it in subsequent pieces. What comes to mind is the old saying that the first step to cure is recognizing you have a problem and what it is.
Investors are overwhelmingly long the market, whether through ETF’s or individual equities or mutual funds. Shorting the market makes very little mathematical sense (take note) because equity markets tend to rise, on average, over 70% of the time. So being long makes intuitive sense. It is also true that while you can lose 100% of your long stock position, you can lose multiples of that in a short position, so the risk is incrementally higher:
Buy at $100 stock goes to zero $100 loss.
Sell short at $100 stock goes to $500 equals $400 loss.
Thus, it is only natural to expect that advice lies overwhelmingly to the Buy side. This is also true in institutional equity research where the vast amount of capital is employed to buy securities, not short them. It thereby should not be a surprise that when you examine the investment title selection on Amazon or Barnes and Noble, the overwhelming (almost completely one-sided) list of titles tends toward giving people the advice they need to make smart purchase decisions.
Search for “stock investment books” on Amazon and here is the first title on the list:
Buffett’s 2-Step Stock Market Strategy: Know When to Buy a Stock, Become a Millionaire, Get the Highest Returns
Well, sure, who doesn’t want that?
I Googled “how to sell stocks” and I got a hefty 583,000,000 hits. But “how to buy stocks” got 4,170,000,000. Which may be a reasonable representation of the differences in learning how to buy versus how to sell. But this is a mismatch! Because 50% of your eventual trades will be purchases and 50% will be sales.
From the perspective of watching investors and markets for 50 years, I believe very, very few people know how to sell. Everyone seems to have their way of finding things to buy, but they are mostly in the dark when it comes to selling.
Some points to make.
First, from a time perspective you may activate your buy discipline on a stock in a few minutes. Perhaps you noodle over an idea for a few days. But once in, and assuming it is not a ‘forever’ hold, you will be actively pinging on your sell discipline every day…should I hold or add?
We’ll cover the pitfalls of mental accounting in regard to profits and losses elsewhere, but just to make the point here that until you close out the investment, until you complete it, you have no profit. You have numbers on a page. Having a sell discipline is absolutely crucial to recognizing this fact.
So why is selling a neglected technique? Why don’t people have a well-defined sell discipline?
In a typical scenario, the investor buys XYX. It is bought to make a profit. From the point of purchase, it should be for sale. The stock can go in several different directions. In the macro view, it either goes up or down or sideways over time. In the micro view, it can combine periods of decline inside an overall bullish move. And vice versa…long period of ascent punctuated by crippling declines. But let’s give our investor an easy ride. He buys XYZ at $20 and his foresight is rewarded.
So, from $20, it ascends in a relentless way. When purchased, he was seeking a 50% profit. When it reached $30, he briefly thought about selling it, but (and you’ve been here) it was acting so well, and he was playing with the house money and and and…so he holds on.
It is filled with helium. It just keeps going and going. And every time he gets nervous and thinks about selling, he can’t! He surfs the web for comments. Everyone seems to be really excited. There is an occasional negative article but what’s that in comparison to dozens of positive comments? After all, the street consensus target on the stock has now risen to $110, after all. So, at $80, there could be another 30-40% ahead!
Our hero could not know that $80 turned out to be the top. It waffles around and then takes a sharp decline to $75. A competitor announces some small weakness in orders and that hits the sector. Of course, he owns the sector leader, so it is probably not an issue. And $75 is still a major profit!
You can write the rest of this. A jagged decline, but more rapid than the increase (declines tend to be more rapid). $70, $63, $55. It steadies at $55, rises to $63…commentary seems to indicate the decline is overdone. Encouraged, any thoughts of selling are freshly frozen in place.
$58, $52, $41 (pre-announced bad earnings) and then, $36, $28, $19, $16…
I have learned that most investors and commentators follow stock prices, they do not lead them. Of course they do forecast…buy XYZ, it is going to $30. It feels like a forecast, but actually, they often are being led around by the price. It goes down; they become despondent and unsure. It goes up, they become confident and sure. These are the seeds that flower into the dreaded Buy High and Sell Low.
A great deal of the time, people assume an existing trend is a permanent feature, not part of a long and complex price movement. When long and making good paper profits (numbers on a page), this positive feedback loop is an additive and compounding thing. Until after some long period of price increase, the ability to make a decision to sell is pretty much impossible.
Conversely, the decision to sell tends to be equally emotional. People become motivated by pain. While they believe they have a strategy for selling or a strategy for the buy and sell complete trip, what they actually have is this:
I’m buying because I hope it will go up and I’m selling when the pain of loss becomes too much to bear.
Fair to ask…is this a recipe for success? If not, then why do so many people do just that?
Thoughts, questions, or reflections? I’d love to hear them. You can reach me anytime at anthony@workingprofit.com
