It can take all day to build a Lego tower, and five seconds to knock it down. You can spend hours impressing your date, then ruin the whole thing with a careless comment. And stocks generally fall much more quickly than they rise.
There are a few reasons for that, Paul Price writes. In fact, it makes lots of sense.
“What does it take to sell a stock you already own?" Price asked recently on Real Money. "Just a computer with a trading platform or app, and a mouse click.” But, he asks, “What does it take to buy shares you don't already own? Money, and a willingness to commit it when nearly everybody else is scared to death.”
You need something to buy stocks. In fact, a few somethings. You need the cash on hand to purchase stocks, often meaning that you need to not have taken too many recent losses. You need confidence that the market in general will treat you well, and you need a reason to believe that this stock in particular is worth investing in.
To sell stocks, all you need is a general fear of loss.
And as any first-year psych student can tell you, fear of loss is a much stronger motivator than the promise of gain. It’s enough, Price says, to make people crazy.
“Most people enter trading days optimistically, hoping to see positive results. After a series of days when every ‘hold’ or ‘buy’ decision costs you money, many investors simply can't stand to even think about putting more cash to work regardless of how attractively priced some stocks may have become."
That anxiety can be "stoked by media talking heads who always parade out super bearish experts. Those TV and Internet hosts live by their ratings. They know bad news sells. Do you remember how many times CNBC replayed Bill Ackman's ‘We're all going to Hell’ video during the COVID panic?... It's hard for the average trader to stand up to that kind of barrage while it's being vindicated by plunging prices.”
Of course, if you bought heavily in March 2020 and held on, you would have made a mint by that October.
The point, Price argues, isn’t that you should never sell. It’s that you should sell based on your own assets. Sell companies with poor fundamentals; buy companies you believe in; and let the market figure itself out.
