Caroline Ritchie: Profit rules in share trading

Caroline Ritchie

SO MUCH rabble this week over some blokes selling some shares.

You would think, judging by the social media reaction, gnashing of figurative teeth and speculation that these were the only people to cash in stock in a company, ever. Like brides who behave as if they are the sole woman in the universe getting married and those mothers who follow that irritating trend of martyrdom personified, there was lots of flaying of idolatry in the media.

Of course, large sellers like this are slightly different to you and I, and it is not as if they, like us, might be simply flicking off a few wee profits to cover the Christmas presents. At least it is unlikely. But there is one way in which we are all the same. We are in this to make money.

We are not in this for sharemarket love affairs, fancy Keynesian theories or to look cool in the eyes of the Computershare registrar. You, and I, and those guys, are in this to make some nice, hard currency. If you disagree, I can direct you to many worthy causes which need urgent funding and you can donate your wealth there. A few chaps realising a little coin from years of hard work, scary risk-taking and their unusual talent should not be so newsy. Sorry.

The good thing, though, is that it did bring up everyone's insecurities about when to sell any of their holdings.

Investment cliques, dormant for months in the wake of the continuing bull market where nothing interesting really happens, roared back into life. Meetings that had become like book clubs, just an excuse for a few wines and a gossip, suddenly looked like group therapy. One person brings up that triggering question, when do you sell, and opens the emotional floodworks of all the others. Total Bedlam for share enthusiasts. And of course, because it is the biggest circular argument, problem and issue in capital markets for the personal investor, it ends up here on the page.

Buying is easy. Selling will do your head in if you let it. We struggle with when to sell for lots of reasons, but the main ones are greed, followed by hope. Greed happens at the top and hope happens at the bottom. Remember, you will realise any share you own for either a profit or a loss and both of those situations require a cool hand and a quiet mind.

How to sell at the top? Impossible to do every time, but a good indicator is: have you made an obscenely astronomical amount of cash? Sell. If not that large, has the profit been abnormal to others around it, unjustified by fundamentals, or in your opinion led by crazy groupies infatuated with key people in the company? Sell. Have one or two holdings gone absolutely manic in a short time and you have no idea why? Sell.

If the directors and founders are selling? Ah, now that one might be a tad different, but see above. Greed will attempt to stop you doing all of those things, so ignore her as much as you can. Your share buddies will almost certainly also be infected with greed so avoid them like the plague, too. At least for investment stuff.

Hope, greed's tattered cousin, waits at the boring end of the cycle, in the loss-making part. I will save her for next week.

So, with selling, remember to do it from time to time, whether you live in a technological dukedom or you are just a provincial country gal trying to make a buck. It's about money, remember.

-Caroline Ritchie is a former AFA, sharebroker & portfolio manager. She runs Investment Stuff, an investment coaching service. Visit her at www.investmentstuff.co.nz. Statements in this column are not financial advice.