Who Should Sell their Stocks in this Market and Who Shouldn't?

Do you remember the Mike Tyson vs Evander Holyfield bout of June 1997? It was the one in which Tyson bit off his opponent's ear.

But I think it should also be remembered for a Tyson quote that is permanently etched in history now.

When Tyson was asked if he was worried about Holyfield and his fight plan, he is believed to have answered, 'Everyone has a plan until they get punched in the mouth'.

Over the years, there have been many variations of this quote used across different fields.

My own investing version would go something like this, 'Everyone has a process of investing until their stocks hit a couple of stop losses'.

The way some of the smartest investors have reacted to events of the last few days is ample proof of the validity of this statement.

Until recently, social media and other platforms were abuzz with the idea that stocks would make new highs in 2022. After a few days of correction such predictions have been thrown out the window.

The very same investors whose confidence knew no bounds, are a confused lot these days. They're latching on to every piece of advice they can on the way forward.

Should they continue holding on to their multibaggers or make an exit?

Should they raise some cash, and if yes, how much?

Or should they go bargain hunting, especially in stocks that are down 30%-40% in a few days?

Unfortunately, there is no one-size-fits-all answer to these questions.

The way you should approach investing, depends a lot on your investment horizon, your goals, and the time and effort you're willing to bring to the table.

This is especially true when making buy and sell decisions.

For example, if you want to spend little time on stock investing and you have a time horizon of a minimum 10 years or more, then a SIP is the best way to go.

The best advantage of an SIP is that you don't need to time the market. You can start anytime and the way the stock markets and compounding works, you can get good results over 10-12 years.

On the other hand, let's say you try to be a little cheeky. You stop your SIPs when the markets hit a new high and then re-start them somewhere near the bottom. Well, I don't think you would have a big advantage over the person who diligently keeps doing his SIP every month.

On the contrary, there's every chance you will mess up the process and end up with a worse outcome.

Here's an example...

December 2007 was one of the worst times in recent years to start investing in the market.

Why? It was the month that marked the top of the 2003-2007 bull market.

And December 2008 was one of the best times.

Why? Between December 2007 and December 2008, the stock market fell more than 50%. So it was quite close to the bottom.

Now imagine two investors. One starts a SIP at the worst possible time i.e. December 2007. The other starts in December 2008, the best possible time.

More than fourteen years later, both the investors would have earned almost identical returns i.e. a CAGR of a little over 12%.

Yes, you read that right.

Over a period of more than 10 years, it doesn't matter whether you invested at a bull market top or a bear market bottom.

Keep doing your SIPs without worrying about the market levels. They will most certainly give you good returns over 10 years and more.

But what it your investment horizon is not 10-years but something like 3-5 years? And you're not doing SIPs but instead have a lumpsum invested in the market? And do you also depend on it to manage your day to day expenses?

Well, in that case, a 50:50 portfolio rebalanced ever year or a 60:40 portfolio or even a 70:30 portfolio is the best option in my view.

The way this works is you decide on a certain allocation at the start of the year, say 50:50, and then rebalance at the end of the 12-month period.

If the stock portion goes up, you sell some and move the money into bonds or FDs. If the FD portion goes up, you take money out of FDs and move them into stocks.

This will ensure you receive the superior returns the stock market gives you and also have enough liquidity to take care of your expenses.

There's another important element of this strategy. You book profits after every significant rise in the market. And you buy more after every significant fall.

If you are this type of an investor then perhaps right now is the right time to move some money into bonds. This is because the markets are still close to their all-time highs. You can buy stocks later when the markets correct significantly from current levels.

Last but not least are those investors who are of the enterprising type. They want to earn market beating returns over the long term.

They're willing to put in the time and effort to study different businesses. They will also study the history of the market. Thus, they can develop an investing process to earn market beating returns.

What should these types of investors do in the current market? Should they sell, hold, or buy more?

Well, I would classify such kind of investors as mostly of two types. The ones focused on valuations and the ones focused on the underlying businesses.

The ones that are focused more on the underlying quality of the businesses shouldn't worry about a correction of any kind as long as the long-term fundamentals of their businesses are intact.

Their only reason to sell should be if the fundamentals take a turn for the worse or if the business has entered a mature or a declining phase in their growth cycle.

If this is not the case, then they shouldn't worry too much about the price. In fact, they should use every such opportunity to maybe buy more of their favorite stocks at marked down prices.

Now, coming to the last category. I tend to incline towards this kind of investor. We're usually of the belief that there're times when a large number of decent or good quality stocks are available cheap. Also, there are times when they're available at expensive valuations.

Thus, a good strategy is to sell stocks we think are fully valued from a 2-3 year perspective and conserve cash for the time when they will turn attractive again.

Since much fewer stocks are trading at attractive valuations currently compared to back in March 2020, cash levels have to be higher right now than back then.

Across my services, I'm recommending a cash level of close to 50%.

Will this allow me to earn market beating returns over the long term?

Well, I can't guarantee that. In fact, there's no one who can guarantee their approach is the best.

However, I'm confident this strategy allows me to be fearful when others are greedy and greedy when others are fearful.

And this certainly tilts the odds in my favour as far as earning market beating returns is concerned.

So, to recap...

You should sell in the current market if you have a 3-5 year horizon and are dependent on your corpus for meeting a large part of your expenses.

You should also sell if you are focused more on valuations than the underlying business.

However, for the other two categories, a weakness in the broader market is no reason to sell.

Their sell decision should depend on something entirely different and should be specific to the underlying businesses or their own long-term goals.

Does this approach makes sense to you, dear reader?

Let me know by sharing your thoughts here. I would love to hear from you.

Happy investing!

Warm regards,


Rahul Shah
Editor and Research Analyst, Profit Hunter

PS: India's leading smallcap guru, Richa Agarwal, will reveal the details of her Top 3 Stocks for 2022. Reserve your seat for Richa’s Mega Summit.