In gathering information for my article on strategies for selling, I took advantage of a useful, ubiquitous, but often overlooked tool on our website: the search box. Located near the right-hand corner of almost every page on AAII.com, the search box helps you quickly find information on an expansive variety of topics.

We have over two decades worth of AAII Journal articles available on AAII.com. So, for instance, if you want to see what has been said about portfolio withdrawals in the past, do a search on the word “withdrawal” and sort the list by date. Among the older articles you find is “Retirement Withdrawals: A Real-World Case Study,” by J. David Lewis, published in September 1999. Notably, among the observations made by the article is the importance of focusing on “the total resources available for retirement.” Nearly 17 years later, I’ve had two conversations about taking advantage of the various income resources available to retirees. One was with Moshe Milevsky and appears here. The second was with Jane Bryant Quinn, and I hope to include the first part of that interview in next month’s issue.

There are topics that AAII hasn’t covered, has not covered enough or needs to revisit. The investment field is constantly evolving, as are theories about finance in general. Nonetheless, I encourage you to take advantage of the vast amount of timeless content that is available to you with just a few keystrokes.

The subject of selling is one I have purposely been addressing this year. In January, we published observations from fund manager Lee Freeman-Shor on his study of professional traders (“Being Wrong and Still Making Money”). Last month, we ran an interview with Grizzly Short fund (GRZZX) manager Greg Swenson (“Shorting: A Strategy for Profiting From Price Declines.”)

The sell decision as is important as the buy decision. Your returns are only locked in when you exit a position. You can have a tremendous unrealized gain, but unless you have a disciplined strategy for exiting, you risk seeing your profits go “poof!” into thin air.

Adding to the challenge are our emotional tendencies. We humans are hardwired to disdain losses, avoid risk and not admit we’ve made a mistake. As such, we’re often too quick to take a profit and too slow to cut our losses. We have a hard time wrapping our minds around the concept of sunk costs—a cost that is already incurred—as opposed to understanding the future opportunity costs of not acting in a disciplined manner. (An opportunity cost is what you miss out on by not devoting your resources elsewhere.)

At the same time, it’s also easy to overlook the fact that transaction costs are enemies of wealth. Every dollar spent on brokerage commissions is a dollar you will never see again. This is why the brokers are so eager to give you trading tools: They want you to transact, and the more frequently the better (for them).

In between is a balance between knowing when you will get out and having the patience to stick with an investment until that day comes.

If you don’t have an exit strategy in place or yours is more ad hoc, you are not alone. Relative to what has been written about selecting investments, there just isn’t much written on selling. When I was gathering information for my article, it was not unusual to find only a few pages, if that, devoted to the subject of selling in an entire book. Yes, some authors have said more about the subject than others (Peter Lynch is one who has had quite a bit to say about selling), but in general there isn’t much.

I’m happy to take a small step toward correcting that. In my article in this issue, you’ll see links to previous AAII Journal articles as well to the books I relied on. Both are good for learning more about the subject.

Wishing you prosperity, 

Charles Rotblut, CFA
Editor, AAII Journal
@CharlesRAAII