Selling is much harder than buying. Buying feels optimistic: you’re starting something new. Selling feels like admitting you were wrong, or that a journey has ended. Because it is emotionally uncomfortable, many investors either sell for the wrong reasons or refuse to sell when they actually should.The first thing we remind ourselves is that a falling price is not, by itself, a reason to sell. The market’s mood swings are not the same as a business’s reality. We’ve seen investors panic out of excellent companies simply because the stock dropped 20-30 per cent in a correction, only to watch it recover and then move far beyond their exit price. Just as often, we’ve seen people hold on to clearly deteriorating businesses because they can’t bear the thought of booking a loss.A useful way to think about selling is to go back to your original reason for buying. When you bought the stock, you hopefully had some idea of what you were paying for: maybe a certain pace of growth, a strong balance sheet, a competitive advantage, or a change in management that you believed would improve things. When the time to sell comes, the real question is: has that original thesis broken down?Consider a stock like Bajaj Finance. Let’s say you bought it around mid 2018 at Rs 275, because you believed the company could grow earnings at more than 20 per cent a year, maintain healthy margins, and keep asset quality clean. Two years later, the stock has fallen from Rs 275 to Rs 185, a drop of more than 30 per cent. On the surface, it looks like a disaster. But when you check the numbers, you see that earnings have indeed grown close to 45 per cent, margins are intact, and the balance sheet is still clean. The fall is largely because the market is in the middle of a broad correction.Now imagine a second stock, Vodafone Idea, which you bought at Rs 65 in mid 2016. Its price has fallen to around Rs 35 two years later. But in this case, the debt has started to get out of hand, margins have collapsed, and management does not have a clear plan to fix things. Here, the problem is not just the market’s mood. The business itself is changing for the worse.In the first case, a fall in price might be a reason to hold or even add, provided the valuation is now more attractive. In the second, it might be a reason to sell even if you have to accept a loss. The key difference is whether your original reason for owning the stock is still true.When we think about exits at Value Research Stock Advisor, we don’t act just because something is volatile. We look for structural changes: a sustained break in earnings power, a clear deterioration in balance sheet quality, serious governance concerns, or a valuation that has become so stretched that future returns are likely to be poor even if the business does reasonably well. Some of our best decisions have been to sit through ugly price corrections because the business story was intact. Some of our most important decisions have been to exit stocks that looked “cheap” in recent price history but where the underlying engine was misfiring.Another reason to sell, which investors often underestimate, is opportunity cost. Your capital is limited. If you find a new idea that is clearly better than something you already own – better business quality, better growth prospects, cleaner balance sheet, more attractive valuation – it can be rational to sell the weaker one and redeploy, even if nothing terrible has happened to it. What matters is whether your portfolio as a whole becomes stronger and more aligned with your long-term plan.There is one reason we try hard to ignore, and that is the urge to “get out because it’s gone up too fast” without looking at fundamentals. It is tempting to think, “I bought at Rs 100, it is now at Rs 150, that’s a neat 50 per cent profit, let me lock it in.” But if the business has many years of growth ahead, the valuation is still reasonable, and your allocation is within your comfort range, you might be cutting yourself off from much larger gains later. Some of the biggest wealth creators look permanently “expensive” on past prices. If you sell them just because they have doubled or tripled, without asking whether they are still good businesses at sensible prices, you may spend the next decade regretting your caution.A good practical habit is to write down, in one short paragraph, why you own each stock. At VRSA, every recommendation is backed by a clearly articulated rationale: what we see in the business, what we expect over time, and what might make us change our mind. You can do a simpler version for yourself. Then, when you feel tempted to sell, reread that note and ask: Has this reason changed? Or am I just reacting to price moves and headlines?Selling will never become effortless. There will always be some doubt, some second-guessing. That’s normal. The goal is not to get every sell decision perfectly right. The goal is to avoid selling good businesses for bad reasons, and to avoid clinging to bad businesses just because you don’t want to accept a loss. If you can tie your decisions to changes in the underlying business rather than the daily ticker, you will make far fewer painful mistakes, and you will give your real winners the time they need to make a difference.(Ashish Menon is a Chartered Accountant and a senior equity analyst in Value Research’s Stock Advisor service.)(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)
