Knowing when to sell is a vital skill
Published in the Geelong Advertiser, January 2015 by Dale Gillham
It’s no secret that Energy stocks have been falling, and for anyone still holding them, and sitting on a loss, the experience may be pretty scary, particularly if you don’t know what to do about it.
The reality is that no one has a crystal ball when it comes to the share market. The only thing you can decide is when to buy, when to sell, and how you will manage risk. When risk increases from an acceptable level to high, which occurred for Santos Limited (STO) late last year, it was time to sell. Santos Limited (STO), which has interests in oil and gas, has fallen by around 50 per cent from the August high.
When a stock falls fast like STO has, having a stop loss can be your saviour to manage risk. The alternative is to not set a stop loss, but then how do you know what risk you are taking when you invest? And, what will you do when you are lying there at night worried about your money, with no strategy to manage it?
A fall of 50 per cent would mean that the share price needs to rise by around 100 per cent just to break even. What are the chances of this happening in a few months, or years, for most shares?
Your choices now, if you are still holding STO, are more limited than a few months ago, however you could decide to sell now, cut your losses and learn from your mistake. Alternatively, you could hold and hope that STO may recover to around $10.00 this year, however the risk exists for a further fall to around $5.60. This may be too hard a choice for some. At the least, be prepared to make better decisions about your other stocks.
So what do we expect in the market?
The Australian share market closed strongly last week above 5400 points, however this week the mood is a bit somber, with the All Ordinaries (XAO) index pulling back to test support at around 5300 points, at the time of writing.
In particular, Resources and Energy stocks have been feeling most of the pinch this week, and banks were also softer, which could be due to talk about a profit squeeze in 2015, and the decision likely after March about bank capital requirements. The US is moving into reporting season which can impact on market volatility. I’m watching for the XAO to settle between 5200 and 5300 points over the next week or so.
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