I’ve been investing in various financial instruments since I was in my early 20s. The stock market, shares in companies I’ve worked for, term deposits, shares in companies I’ve worked for and startups have all been investments I’ve made. I’ve gradually got better at it. Most of my early forays into the share market made for truly awful losses. Fortunately, I wasn’t investing a lot so they made for painful, but not overly damaging learning experiences.
However, there is one decision that I consistently regret. Selling. Here’s why. I’ve always invested for the long term and the money that I’ve invested is never for some short term goal like buying a car or a house. Any investment I’ve made has always been to increase my net worth and passive income to give me the option to retire young and be financially independent. Along the way, I’ve sold some of these ‘long term’ investments for reasons such as:
- The stock has gone up a lot recently and there’s a good profit to be made;
- Tax returns for some small holdings are a pain so I’ll sell, consolidate and simplify my portfolio;
- The investment was under-performing, so best to dispose of it;
- We’re moving to a new city and renting out this property is a pain so we’ll sell our home and use the money elsewhere;
When I sell I’m just converting an asset to cash and then needing to reinvest it in something else as quickly as possible since cash has such a low return these days. This means that I end up selling a long term investment because I perceive it to be inconvenient then use the cash to buy another long term investment. All that I’ve done is rake up 2 sets of transaction fees and have cash sitting in the bank for a period of time while I fumble around trying somewhere else to put the money. And, in most cases, the new investment doesn’t perform any better then the old one did.
I also find that “sellers regret” is a particularly powerful negative emotion. This happens when I see an investment that I’ve sold continue to rise in value. For example, I bought Xero shares years ago for $1.60. I sold them about 3 years later for $5, making a pretty decent capital gain. Now they’re around $45. I missed out on hundreds of thousands of dollars by selling when I didn’t need to. That hurts way more than had Xero slumped to 50c and I’d lost a few grand.
I’ve learned that a long term “buy and hold” investment strategy really means that I have to hold. I’m 45 now. Any investments I own now I will also own at 65. It’ll be interesting to compare the returns of my first 2 decades of investing with my second.
Adrian Falvey 