It’s nearly reporting season – it feels like coming up to Christmas for me. Exciting stuff! Maybe it’s just me and my Foolish colleagues that feel like that. What is exciting is when your shares jump after reporting. It feels great to be proved right about your investment idea, in the short-term at least. Last reporting season shares like Altium Limited (ASX: ALU), a2 Milk Company Ltd (ASX: A2M) and Corporate Travel Management Ltd (ASX: CTD) all jumped impressively on report day. Some people might think it’s time to sell, lock in some gains. It’s not a…
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It’s nearly reporting season – it feels like coming up to Christmas for me. Exciting stuff! Maybe it’s just me and my Foolish colleagues that feel like that.
What is exciting is when your shares jump after reporting. It feels great to be proved right about your investment idea, in the short-term at least.
Some people might think it’s time to sell, lock in some gains. It’s not a bad idea. Until you sell your shares you can’t access the capital gain and it could easily drop, wiping out your gain.
But, don’t be so hasty. Tom and David Gardner, the founders of US Motley Fool, would advocate to never sell in almost every situation. Here’s an article about some of the lessons they’ve learned which includes holding your winners. If that company isn’t done growing its profit then it could grow in value for a long time to come.
It’s true that a company could fall 10%, 20%, 30% or more at some stage. But that could be a time to buy more shares, not to panic sell.
As I’ve said before, I think there are only three reasons to sell:
- The valuation is far in excess of your own valuation. If that’s the case taking some profits off the table may be prudent.
- The thesis has changed. For example, if you invest in a retailer and it decides to acquire a dairy farm then that may substantially change the reason why you bought shares of that business.
- There is a better opportunity. Sadly, we don’t have limitless money to keep investing into whatever we like, we must allocate our money to what we think is the best place, which may include selling something to buy something else.
Arguably, the only real reason to sell is if the thesis has changed. The other two are perhaps more gambling that you can do better with your money and perhaps end up paying tax on capital gains.
I’m very happy with the shares that I currently own in my portfolio and I don’t foresee selling any shares between now and at least to the ending of reporting season. If one of my shares falls, like Altium, then I’ll probably top up my holding rather than selling.
During reporting season I've got my eye on one of these top shares in-particular which is exposed to the ageing demographic, I really want to buy more of it for more portfolio.
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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. The Motley Fool Australia owns shares of A2 Milk and Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.