Help! I’m freaking out, how do I sell?
Nov 17, 2019
From time to time I get emails along the lines of: Oh crikey, I think I should sell!
Here is an example:
Hi Ruth,
Hope you can give me a little guidance as I am a little lost.
I am wondering if you could give me some guidance as I am new to investing and have Invested money with the SmartShares LIV fund (Healthcare Innovation ETF) and have seen the price keep dropping.
I have also invested in other ETFs which seem to be cruising along nicely.
As this is my first experience with shares, my hunch says to get out before I lose more money.
When do you know when the right time is to sell?
What do you do when you want to sell?
Are there any fees, costs or penalties when I sell?
Hope you can give me a little guidance as I am a little lost.
Many Thanks,
J.
Due to the ease with which we can now invest there are many people who are investing for the first time in their lives and this was the case above. They are learning how to buy, what to buy, what they like, what they don’t like. It used to be hard to invest, only the likes of your uncle could do it and he would have kept elaborate handwritten spreadsheets and read the business section of the paper in great detail, with a pen in hand for circling things of importance. Sentences may have started with “my broker told me to buy XYZ…” But that’s all changed now with the likes of SHARESIES and HATCH, the signup process is so rapid that you are signed up and have started investing before you can really comprehend what you are doing.
And that’s both a good and a bad thing. Personally, I don’t want people to procrastinate too long and overthink everything, but also, I don't want people to rush into it and buy rubbish shares either.
Stumble In
I’m making assumptions here, but from all the people I’m in touch with I think it’s a fair assumption to make that most sign up, start small and dip their toes in the water with very small amounts of money, just for a bit of entertainment to see what happens and so that they can educate themselves. It’s easy to do and with such small money at play, we really don’t give it a second thought.
I would encourage you to pay a bit of attention in these early stages and become comfortable with the investments you are planning on making, you don’t have to understand everything, but you do need to understand what you are buying. Because after a period of time, if you feel comfortable with how the process works and you begin to take it more seriously, you may begin to invest more into that fund. You will see your small investment amounts begin to add up pretty quickly and before you know it you have $100, $1,000, $20,000 or more invested. It’s wonderful to see how small amounts invested quickly compound and it’s fantastic to see people educating themselves.
But then the worry sets in.
If in the beginning you simply purchased ‘something’ because your friend or colleague said it was a sure bet, as you keep buying more of this ‘sure bet’ you might begin to doubt your reasons for buying. I did this when we bought into some obscure tech company on the say so of someone who in hindsight had absolutely no idea what they were on about. If you don’t understand what you have invested in then what happens next is that you start to think about things like:
What the heck am I doing?
Do I even KNOW what I’m doing?
I don’t know what this company does!
The price keeps dropping, how do I get out while I still can?
Could I lose this money, I started at $5, now it’s $5,000!
Can I afford to lose $500? Or $1,000 or $5,000?
When do I know when the right time is to sell?
How do I sell? OMG, I don’t even know how to sell!
Are there fees, costs, penalties when I sell?
Learn the ropes
Instead, do your research before handing over your hard earned money. Once you have settled on something, learn about it, learn the process to purchase shares in it and then make your first investments, look, listen and observe. Once you are comfortable, reassess if this is something you want to continue with, if it is, keep investing in it.
Your hunch is probably wrong
I think that these platforms that allow us to easily invest are fantastic. They take the mystic out of it, then boil it down to a pretty simple process: see a company or (preferably) an index fund that you want to invest in, click a button and you are now a shareholder in that company or fund.
Awesome.
I think that just by investing $5 a week you are spending $5 on your education and I really encourage people to start small, invest on a regular and ongoing basis and just observe and learn and watch what happens, both to the share price and to your comfort levels. Often times the value of your shares goes up, of this, we tend to take little notice. It’s when it goes down that the education in your appetite for risk really begins.
What kind of drop can you stomach? Losing 5%, 10%, 50%? At what point do you stay the course? At what point do you sell? At what point do you buy more?
What will you do if the value of your shares starts dropping. In the email above her “hunch says to get out before I lose more money.”
At which point my thought was “I think your hunch is probably wrong”. Don’t invest on a hunch.
Stay the course
I answer a lot of emails, people would rather contact me privately than go on a forum (hence me having no public forum) and one of the most common resources I tell people about is the book: The Simple Path to Wealth by JL Collins or this podcast episode from ChooseFI where he was interviewed about his book: JL Collins The Stock Series Part 1
The reason is because he is so articulate in explaining why investing in a broad based index fund (instead of individual companies) makes a lot of sense. You are picking a fund, such as the NZ Top 50 (FNZ) fund here in New Zealand that is made up of, you guessed it, 50 companies. By giving them your $5 or $50 each week you are saying to these companies “I want to be a part of what you do, here, have some of my money so that you can continue to evolve and grow your businesses and I can share in your profits”.
So, don’t forget that is the reason we invest, to support companies that you believe in and want to see succeed. At the time of writing this post, the top ten companies here in New Zealand are:
Fisher & Paykel Healthcare Corporation Ltd
The A2 Milk Company Limited
Auckland International Airport Limited
Spark New Zealand Limited
Meridian Energy Limited
Ryman Healthcare Limited
Contact Energy Limited
Fletcher Building Limited
Mainfreight Limited
SKYCITY Entertainment Group Limited
If you have an investment portfolio where the value rises and falls, it’s just reflecting what is going on within the companies that make up your fund. When the new SkyCity Convention Centre went up in smoke recently, the shareholders of both Fletcher Building Limited and SkyCity were rightly concerned and the price of their shares dropped suddenly. Recently the Tiwai Point Aluminium Smelter way down in Bluff said that business was a little uncertain, the Meridian Energy share price dropped because they supply an enormous amount of electricity that the smelter needs. The value of my own Meridian shares dropped by $3,500 as a result, but I still own the same amount of shares. No change there.
So, REAL things are happening to REAL companies and this has an impact on the share price. On the flip side, there were positive business news stories as well, they just happen to get a little lost amongst the bad news.
So, when you see the price drop, just understand that this is the normal ebb and flow of things and it’s not a need to panic. If you sell your shares when the price has dropped, you will lock in your losses. Every single day there are things happening to companies in New Zealand that have an impact on their share price. It’s a great shame that the SkyCity Convention Centre had a fire, but on the flip side, all the companies who supplied product in the first place just got another big sale because they will need to supply product all over again! If they are a listed company, chances are their share price just rose in anticipation of new orders coming in. In fact, I bumped into a friend who has worked on that building and he said in jest “do you want a job in Auckland Ruth?”
So, if you just stay the course, chances are that the price will recover and life will go on. Remember that investing in the share market is a long term investment strategy and if you react to every announcement you will just freak yourself out. Those investors who chop and change are likely to lose money.
IF however, you begin to realise that you have bought a complete dud, then there may come a point where after researching the company or situation you may need to cut your losses and sell. But don’t have a knee jerk reaction to this, do it from a place of understanding the implications of your decision. And NEXT time you want to buy into something, remember the lessons you learned from last time.
Keep Warren Buffets two rules for investing in mind:
Rule 1 - Never lose money
Rule 2 - Never forget rule No.1
Preparation is the key
But, sometimes you may want to sell, not because you are panicking, but because you need that money elsewhere. Maybe you have reached retirement and the time has come to use that cash. And that’s a better reason to sell - when you have a well thought out exit plan. Personally speaking, for every $1 that I invest I have committed that I won’t be taking it out again for at least ten years or more. I think long term and you should too.
In Episode 31 of The Happy Saver podcast I spoke with Tracey and she said something that has really stuck with me: Don’t get into something unless you know how to get out.
This applies to your investments, while you are ‘getting in’, you do need to have formulated an exit strategy or a plan to ‘get out’. The key is to get the systems set up long before you need them and this is what I have done. And it’s pretty easy.
Using Sharesies as an example, I’ve been investing into the New Zealand Property Fund (NPF) on a weekly basis. And although I’ve always observed the SELL button, which sits right beside the INVEST button I’ve not tested it out. So, because I wanted to blog about it, I thought I would test out SELLING some shares. I just went to Fund Details for my NZ Property Fund and instead of clicking Invest, I clicked sell.
Selling 10 NZ Property Fund shares on Sharesies.
I placed my SELL order for 10 shares at 7.05am and by 10.08am the money was back in my Sharesies Account.
The Sell Order for the NZ Property Fund from Sharesies.
I could then go into my Wallet and have this money withdrawn from my Sharesies Wallet and sent to my bank account, whose details are already in the system. Selling through Sharesies is SIMPLE, straightforward and above all cheap.
Feeling emboldened I then thought I would sell some of my SmartShares that I buy directly through the SmartShares website. Selling these is different, I have to sell through a broker.
I had previously used my CSN (Common Shareholder Number - a nine digit number) and my FIN (four digit number) to create an account with www.directbroking.co.nz (they used to be ANZ) and it just sits there dormant waiting for me to do some trading. Because I’m a buy and hold investor, I’ve never used their service to trade, but I still went through the steps of setting it up in case I wanted to sell in the future. The CSN and FIN are unique to me, they connect me with my shares. I created a “sell order” to sell 5 shares. But this time I didn’t go through with it. Why? Brokerage was $29.90! But you get the idea nonetheless. Once again it was a straight forward process made so much easier because I had set up the systems well ahead of time.
Confirm New Order screen from Direct Broking. I didn’t confirm this order as the fees are a killer for such a small order.
If I were to be selling thousands of dollars then the brokerage fee would be less important but on small sales, it would be a killer. These two different systems show where the old and new worlds of investing collide. When the likes of Sharesies talk about making investing more accessible, this is what they mean, this is where the rubber hits the road. The “buy” process is easy, but the “sell” process is easy as well and I’m not being hit by the dreaded fees that you constantly hear about in the personal finance space. $29.90 to sell some shares! No thanks!
Hold, Hold, Hold and only sell if...
I emailed the woman above back, but then there was a bit of a gap before I heard from her again. But her response was worth the wait. She had been away, busy doing other things and when she returned to normal life and turned her attention back to her poorly performing fund she emailed me the following (I’ve edited it to protect her privacy):
I have decided to tia-hoa (to wait) on selling. I think I had my first experience of the speed wobbles.
I started investing this year. I have just organised the portfolio as you advised on Sharesight and that has helped give me a better perspective.
Yes, I think some advice to us newbies on selling would come in helpful.
Many thanks
J.
I’m so pleased she took time out and evaluated her situation. I then went back to her with a very handy (and a bit funny) youtube clip which is a ‘guided meditation’ released by JL Collins. He created it specifically for those people who get the wobbles and need a soothing voice to guide them: A Guided Meditation for When the Stock Market Is Dropping
I also said to her, remember the words of I think Jack Bogle which were along the lines of “the best investors are those who have forgotten they have shares, or are dead”. The fact she had to leave town for a bit was probably one of the best things she could have done to calm your nerves. And remember that if you are confident with the investments you have made, then just get on with life, check on it from time to time and stay the course.
