Learn to invest with Buffett

Chapter 21

Chapter 3, Section 5 Know when to sell before you buy

No matter how much time, effort, energy, and money you put into an investment, it can all be for naught if you don't have an exit strategy defined in advance.

--Warren Buffett
Buffett never invests blindly without knowing when to exit.In the following three situations, Buffett will choose to sell his stocks.

1. If one of his stocks no longer meets one of his investment criteria.

2. When he has a better investment opportunity.

3. If he realizes that he has made a mistake and realizes that he should not have made such an investment at all in the first place.

As a new investor, if you grasp the timing of entering the market correctly, you are only half successful. Grasp the right timing to sell,

is a successful investor.

I believe that many investors have had this experience: I bought a good stock at 15 yuan, and it rose to 1 yuan, which has doubled, but the stock still has upward momentum from the trend, and I don’t want to sell it; When it returned to 14 yuan, I thought it was just a callback; when the equivalent value returned to 13 yuan, I thought I would not sell it at 14 yuan, let alone at 13 yuan; I think that since the price has dropped by nearly 10%, there may be a chance for a rebound. After the rebound, I will sell it no matter what.Unexpectedly, the price fell back to 35 yuan. If you don't sell it, you may have nothing, even the handling fee is not enough, so you still sell it in the end.

This shows that investors can only put profits into their pockets if they sell at the right time, otherwise everything they get will be wealth on paper.Therefore, successful selling is an important means to ensure the fruits of victory, and it is also the best way to avoid being caught.Many investment professionals have their own methods for deciding when to sell.For most investors, the most basic and simplest method mainly depends on the following aspects:

1. When a major negative policy is announced, it should be sold in time
When the stock index and stock price are rising well, the management announces a major negative policy. Such negative policy is generally difficult to predict and will affect the entire market, and all individual stocks are no exception.Once this situation occurs, it is absolutely correct to place an order to sell the stock immediately.Poor policies generally have a far-reaching impact on the stock market, and it is difficult for the stock market to stabilize in the short term.So being out the first time is a great way to protect yourself.

2. When individual stocks announce some bad news such as lawsuits and pre-losses, they should also be out of the market in time
Although it is a good statement to say that all the profits and shorts are full, it is not necessarily true for individual stocks.As long as there is a bad news for an individual stock, its market image will be damaged, and its stock price will not improve much in a short period of time, even if the bad news is to cooperate with the banker to attract money.Generally speaking, individual stocks need time to digest the impact of negative factors.

3. When the stock price is close to the resistance level, it should be sold
The resistance level generally refers to the upper track line of the ascending channel, or the pressure line of the downward trend, or the high-level transaction-intensive area or the previous high level.It is generally said that there is a certain amount of psychological pressure near here, and there are two possibilities near here, one is to continue to rise, and the other is to fall back when encountering obstacles.If the price breaks through the resistance level after selling, it can be bought back again.But most of them fall back when encountering obstacles. After selling, observe and observe, and then make a choice.

4. Sell when the price breaks down the support level in the consolidation zone
Generally speaking, after a long period of consolidation, a stock suddenly breaks downward. If the consolidation zone lasts for a long time, the strength of the downward breakthrough will be greater. At this time, the selling insurance factor will be greater, and the chance of falling due to price inertia will be greater.

5. When a stock announces good news, and the stock has risen for several consecutive days, and its stock price has reached a high level, it should be sold in time

This shows that the stock price has already reflected this good news in advance.Therefore, it is best to wait and see first, because this situation is particularly effective when the shock occurs.Since the stock market is not regulated, there will always be some prophets in the market. After the announcement of good news, the market hype also lacks haziness.

6. When the stock has been rising for three consecutive days, and the daily increase is above [-]%, you can consider selling first and then observe
Generally speaking, the three-day increase is nearly 15% to 30%, and the short-term profit is relatively large, and the pressure is relatively high.But this situation is not suitable for super strong individual stocks and super strong trends.

7. When a stock is rising and the trading volume on a certain day is larger than usual, it is best to sell it in time

The formation of a huge amount indicates that the competition between buyers and sellers is fierce, and most of the profit orders are pouring out, and the market outlook may temporarily fall back.Therefore, in the face of this situation, sell first.

8. When a stock releases a huge amount continuously, but the price does not increase much, and the market is not good, the stock should be sold in time
This often means that the main force uses countermeasures to attract retail investors to follow suit, thus waiting for an opportunity to get out.In this case, it is best to sell the stock in time, and don't take chances.But when the market index is good, there is no need to sell.

9. What is your expected return? If you have reached your expected return, you can consider selling
This is an important consideration when the book has already made a profit.At this time, it depends on how much your expected income is.If your expected return is met, you should decide to sell.Of course, you can also sell half first and then keep half in the hope that the remaining stocks will have higher profits.If you use this method to decide your selling timing this year, although you may not be able to sell at the highest point in April and get the biggest profit, at least you can be guaranteed to get a certain amount of profit, and you will not be caught Worrying about getting stuck now.

10. What was your reason for buying in the first place, and if this reason has changed, you should sell

This is usually an important consideration when the price falls and the stock is stuck.The risk for investors at this time is that the current decline may be temporary, and if they continue to hold, they will still be profitable in the near future.But this decline can also continue for a long time, and investors should sell at this time.The judgment of whether to hold or sell depends mainly on whether there are still good reasons to buy in the current situation.If you think there is, you should continue to hold it, and you can even consider buying more stocks; if you think there is no, you should resolutely sell it, no matter how much you have locked up.

Investment motto:
Buffett reminds investors: "You should be greedy when others are worried, and you should be worried when others are greedy." This is to remind investors to use reverse thinking to grasp opportunities to enter and exit the market. At the beginning, they dare not enter the market, and only consider entering the market when the market has developed to a certain level. For this type of investors, it is even more important to understand Buffett's famous sayings in practice, and grasp the timing of exiting and entering the market.

(End of this chapter)