Statistics have shown that selling a stock is much harder than buying. That is especially the case when the stock you're considering disposing of has been such a strong performer for your portfolio over a long period of time.
And while we Fools (capital 'F') pride ourselves on holding onto stocks for the ultra-long term (where the ideal holding period is 'forever') there can come a time when selling is the only rational thing to do. For me, that seems to be the case right now for shares of Commonwealth Bank of Australia (ASX: CBA).
Since its debut on the ASX in the early 1990s, Commonwealth Bank of Australia has been an incredible driving force behind many portfolios. Its strong capital gains and lucrative fully franked dividends have certainly made a lot of investors a whole lot wealthier. More recently, the returns seem to have been turbocharged by a number of macroeconomic forces such as low interest rates and a booming housing market.
That is the first reason why I believe now is the time to sell. Its rally in recent years has it now trading near an all-time high price while it is also one of the most expensive bank stocks in the world. I fear that from this level the stock will struggle to deliver market-beating returns in the years ahead.
That brings me to my second reason. Considering my rather bleak medium-term outlook for the stock, I believe investors should now be considering redeploying their capital into other high-yielding stocks which offer far greater growth potential, including one promising stock The Motley Fool's top analysts are very excited about. More on that below…
Finally, investors also need to consider the strong headwinds facing the business and weigh up whether it's really worth the risk. While I believe there is limited upside potential for shareholders at these prices, the stock could come tumbling down should bad debt charges continue to rise or if competition continues to impact the bank's net interest margins. Meanwhile, should any cracks start to appear in Australia's inflated housing market, the bank's shares could also be amongst the first punished given its heavy exposure to the sector.
A much better option than Commonwealth Bank
As I mentioned above, the smart money is no longer going into overpriced bank stocks, but rather into high-yielding growth stocks which are yet to be fully appreciated by the market.
