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114 Key Principles for Success

Principle 91 - Buy/Sell Decision

I was holding some crappy stocks and my broker made a mistake. He accidentally sold my holdings, so I had a lot of cash. The broker apologized and he asked if I wanted to get back the stocks at no cost. Just because I own something that lost value does it mean I have to hold on to it? Maybe the company, industry or market cycle changed. Maybe a better investment has shown up.

With any asset you own, holding it is the same as if you took cash and bought it today. Let me repeat that because it's so important. Let's assume you bought a stock at $100 and now it's worth $50. By holding it you've basically bought it for $50. Now if you had $50 instead of the stock, would you buy it today? That's the way you should look at the assets you're holding. Some people will call losses a paper loss if they don't sell, but there's no such thing as you don't know if the asset will ever be worth your original purchase price. The same is true with friends, jobs, houses, spouses, books, cars basically anything you own or are connected with. I was down a lot and thought about it. I decided not to repurchase the losers I had.

Now you may be in a similar situation and wish your broker did the same thing. But you can always sell all of your holdings just as if your broker made a mistake. You always are making this choice when you hold on to something. It's as if you acquired it that day.

With your current job would you want to work there and do what you do? If you didn't know your current spouse and just met them would you want to marry them? If you didn't know a current friend would you want to be friends with them?

You can use this idea with anything that you own and are not sure if you should keep it. You could ask the question another way, would you buy something you own if you didn't own it?

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