The S&P/ASX 200 Index (ASX: XJO) has done well and recently reached an all-time high. After reaching new heights, should this be a time to sell my ASX shares?
It's a confusing time for markets to be hitting peaks, with central bank interest rates at a multi-year high point. Higher interest rates, in theory, are meant to push down on asset values. As Warren Buffett once said:
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.
Sometimes share markets climb a wall of worry and manage to keep rising, partly driven by rising earnings. But, of course, occasionally the market becomes too excited. Volatility can send share prices up as well as down.
I invested in a number of ASX shares in recent months, which I wrote about, and a number of them have jumped. My Lovisa Holdings Ltd (ASX: LOV) shares are up 32%, Pinnacle Investment Management Group Ltd (ASX: PNI) shares are up 38%, Elders Ltd (ASX: ELD) shares are up 42% and Temple & Webster Group Ltd (ASX: TPW) shares are up 69%.
Is this the time for me to sell some of those shares? Should other investors be thinking about selling theirs?
Long-term strength
There's a danger of thinking that just because an ASX 200 share has risen to a new high, it can't keep rising over time.
My view is that real winners with genuine economic moats usually keep on winning. Just look at names like Pro Medicus Ltd (ASX: PME), Altium Limited (ASX: ALU), WiseTech Global Ltd (ASX: WTC), REA Group Limited (ASX: REA) and TechnologyOne Ltd (ASX: TNE). They hit short-term bumps, but those great businesses keep going.
I truly believe ASX shares like Temple & Webster and Lovisa are going to be much bigger five years from now, which should be very helpful for driving their share prices higher.
I'm not going to try to guess when the share prices of the software or retail stocks will fall, but volatility wouldn't put me off holding them, and I don't want to sell prematurely. I'll be happy to buy some more shares on any material market weakness.
In summary, I don't think investors should sell just because the overall market has gone up.
Fund managers have the same view. As reported on the AFR, Sebastian Evans – the chief investment officer of NAOS Asset Management – wisely said:
If you look at JB Hi-Fi Limited (ASX: JBH), Reece Ltd (ASX: REH), Monadelphous Group Ltd (ASX: MND), these are businesses that many investors sold too early because they felt the market was saturated, or they were too expensive, but over time their moat has allowed them to grow one way or another and the profit multiple has held or increased significantly over time
Never sell ASX shares?
There are plenty of reasons why it may make sense to sell.
For starters, there may be good reasons to sell if a business is doing badly (though the share price alone going down shouldn't necessarily decide things).
Investors may need to sell for the money to buy a house or another important reason.
It could also make sense to sell if the investment thesis has played out. For example, someone may have decided to buy a retailer or a miner when conditions are weak and sell when the recovery has happened.
It can be beneficial to identify cyclical stocks that have the potential to rebound. I invested in Elders because I saw a cyclical opportunity, but I wouldn't bet 'the house' on it being in my portfolio in five years.
I'd only sell shares at the moment if they had gone through a cyclical recovery. For example, I did sell Centuria Capital Group (ASX: CNI) shares (after buying a few months ago). I wasn't expecting a 30%-ish gain so quickly, but that's how fast sentiment has recovered. I'm planning to hold the rest for the longer term.
