Strategies for Selling Your Stock: Immediate or Gradual Approach

The process of selling stocks is not as straightforward as it may seem. There are specific conditions under which a transaction can occur, including a willing seller, a willing buyer, and an agreed-upon price. However, in practice, there are nuances that can impact the efficiency and speed of selling your shares.

Three Essential Elements for Stock Sales

For a stock to sell, three key elements must be present:

A willing seller: The individual or entity who wishes to sell their shares. A willing buyer: The individual or entity who is interested in purchasing the shares. An agreed-upon price: The price at which the seller and buyer can come to terms.

If these conditions are not met, the stock will not change hands. For instance, if you offer your stock for sale at a price that no one is willing to pay, the stock will simply sit.

Immediate Sales or a Complicated Process?

The process of selling stocks can vary significantly. For most stocks, the sale is almost instantaneous. There are always buyers ready to purchase, and a deal is often struck quickly, although there may be a delay in the transaction settlement.

However, for some stocks classified as 'thinly traded,' the situation can be less straightforward. In these cases, finding a willing buyer might be more challenging. A market maker, an intermediary, may be involved to ensure that the stock can be bought and sold even if there are no other buyers in the market.

The role of a market maker is to buy and hold shares until a buyer is found. If a market maker is not available, your broker might keep the sell offer open until you decide to cancel it. However, in practice, it's unclear what happens in such scenarios, and it is safer to assume your broker will maintain the offer.

Managing As a Retail Investor

As a retail investor, you are unlikely to own such a large amount of shares that finding buyers becomes a significant challenge. Your ability to sell your shares primarily depends on the price you are willing to accept. Once you find a price range that aligns with market prices, the real decision comes down to whether you sell all at once or gradually.

Value Investing vs. Technical Analysis

When selling, value investors, like myself, follow fundamental analysis to determine intrinsic value. My strategy involves selling shares when the price is 1.2 times the intrinsic value. However, the decision to sell in one go versus gradually depends on whether I am confident in the price having reached its peak. Often, I choose to sell about 20% of my holdings at a time.

This approach can be seen as a form of dollar-cost averaging, where the goal is to average out the purchase price over time. The track record of this strategy has been mixed. Sometimes, my average selling price is lower than the highest price reached, while in other instances, I stop selling halfway when the stock price falls below the intrinsic value.

There is only one occasion when I have sold all my shares: when there is a significant price break, indicating that the price has surpassed 1.5 times the intrinsic value. However, I have found that such price breaks do not last, and prices often drop a few days later. This approach involves a degree of irony, as I use technical analysis to chase rising prices, while my value investing strategy is rooted in fundamentals.

Conclusion

The journey of selling stocks is complex and requires careful consideration. Whether you sell immediately or gradually depends on several factors, including market conditions, your financial goals, and the time frame within which you want to sell.

Understanding the dynamics of both value investing and technical analysis can help you make more informed decisions. By balancing these strategies, you can achieve more consistent and profitable stock sales.