Editor’s note: We’re pleased to be rolling out a summer series on investing books. Each week we’ll be reviewing two books — one classic, one a bit newer. Our editors and contributors will offer their perspective on some popular titles. We hope you find some inspiration.
Investors can find advice on which stocks to buy — and when to buy, and what not to buy — just about everywhere. But there’s a suspicious vacuum around selling stocks. Few people talk about it, and never in the detail that they discuss buying stocks.
If you’re looking for someone to break that silence, I recommend picking up Justin Mamis’ When to Sell.
The book takes a technical look at the markets and offers advice on when to sell your stocks. Sounds like an easy thing, right? Everyone knows you’re supposed to buy low and sell high. But how high? What if it goes higher? And if a stock drops, won’t it come back up? How far up?
Investors’ emotions tend to get in the way of their judgment, and that’s where this book comes in. The market is a phenomenon of mass psychology, as Mamis notes, and investors who can use objective observation will have an advantage over the ones who weigh down their portfolios with emotional investing.
When to Sell examines market psychology and uses technical analysis to coach investors away from common pitfalls. Want to avoid buying at a top (as so many money managers do)? Watch divergence indicators. Want to avoid riding a stock into the ground on baseless hope that it will recover? Use stop-losses and adjust them as your portfolio grows.
One point that Mamis makes very early in the book is that no investor should expect to play the stock market perfectly. Investors are lucky if they perfectly time a top or bottom once in a lifetime; expecting to do that consistently is absurd, not to mention a fast track for frustration. Instead, the smart investor sheds the emotional weight of the stock market and looks at one thing: Is the stock performing as expected?
“With proper discipline and intelligent observation of the information that’s available, you ought to be able to make more money than you lose, and in the stock market that’s the only measure of being right.”
More than anything else, I found the book’s insights about investor psychology useful. Much of the purpose of technical analysis is to use a stock’s history to anticipate how a stock should perform. But people are the ones driving that performance, so the more you understand about how other investors are likely to act, the more you can inform your own decisions.
This book has stayed relevant for the past 36 years precisely because selling stocks is not as straightforward as buying stocks, yet the act of selling is at least as important as that of buying. If you pass on a stock that ends up skyrocketing, you miss out on an opportunity, but don’t otherwise harm your finances. But if you don’t sell a stock before it plunges, you’re losing assets. And the longer you wait, the more you lose. So selling becomes an essential part of protecting your portfolio.
This book is ideal for relative newcomers who are looking for more insight about technical analysis, or anyone who wants more tools for protecting investments. Mamis writes very accessibly, and the charts he uses to illustrate his points are easy to understand. The only issue I took with Mamis’ writing is that he makes the analysis sound more obvious than it typically is, which can come off as condescending — otherwise, the book is very reader-friendly. Important points are italicized, and would lend nicely to a pocketbook of investment advice.
Don’t be fooled by the modest title — this book is packed with useful, perhaps even essential, investment advice.
Adam Benjamin is an Assistant Editor of InvestorPlace.