This week I flexed my developing investing muscles in a new direction. I forced myself to sell something that was doing very well and it was much harder than I expected.
My reasoning process was sound (I think), the fund (Axa Framlington Biotech) has risen over 20% in the 8 weeks I have held it and I can't see it continuing to rise steeply for much longer (it actually dropped 1.66% the day after I sold). Even if it does continue to gain I had definitely started to feel that it was time to take some profit so I sold £500 worth, which was about the amount my investment had gained since I bought it. However, my emotions played havoc with my common sense in a "But what if you sell and it goes up more - you'll be sorry then won't you?" kind of way which was unforeseen and I didn't like. It smacked too much of unreasoning greed. I steadfastly refused to listen to my inner "kid in a sweetie shop" and pressed "Sell". For this reason I will consider this a successful sale even if the finances don't turn out to maximum advantage, because I've now proved to myself that I am very aware of the part emotions play in investing and I am capable of overriding them. I felt the greed and did it anyway.
The downturn in October actually caused me far less angst, maybe because hanging on when things are dropping is far easier than deciding when to sell when things are going up. Inactivity is always easier than action (or so I find anyway). Selling something that has been more or less standing still (as my CIS UK Growth fund has been doing for the last year or so) was also easy to do. But giving up something that is rising steeply (surely the time to do just that?) was a different matter altogether. I almost (but not quite :-)) hope I don't have to do it too often.
In all the reading I have done as a novice investor, the subject of when to sell is one on which I haven't actually found a great deal of help. But we all have to do it don't we? No matter how good we are at the long-term "buy and hold" strategy at some point we are all going to need to take the money out. Steep growth (i.e .growth at a high rate over a short period of time) will surely be mirrored by steep falls. If this averages out to excellent long term growth does this mean that the best strategy is still always buy and hold, even though it must also depend on when you want to realise the profit? What is the best way to manage very volatile funds/markets?
This is something of a testing time for me as I am pretty new to investing and I had been congratulating myself that I had weathered the (admittedly somewhat modest) downturns in my riskier funds without feeling too much pain. However I wasn't prepared for this side of the volatility coin. I've only been watching and actively managing my investments since March and haven't seen anything much in the way of gains so the way this particular fund has behaved has taken me by surprise. I've realised that I didn't (and still don't) have a strategy for dealing with this situation.
My sale this week was actually more a test of resolve over emotion than a move dictated by financial planning and although I still believe I did the right thing, I would like to be more sure and have the reasoning to back it up. As ever I'm probably searching for a non-existent perfect recipe, but any tips, or links to reading on this, would be very welcome.