In this episode, co-hosts Engineer My Freedom and European DGI discuss a crucial topic for investors: when to sell stocks. This discussion is particularly relevant given the current market dynamics and the upcoming U.S. elections.

The hosts reflect on the journey of the podcast, celebrating their milestone of reaching ten episodes. They express gratitude to their listeners and encourage engagement through likes and subscriptions. The conversation quickly shifts to the busy week they both experienced, highlighting the impact of current events on their investment strategies.

Current Events and Market Sentiment

European DGI shares insights from the recent Democratic National Convention, where Joe Biden was announced as the presidential candidate. He notes the historical correlation between presidential elections and stock market performance, recalling how the market reacted strongly when Donald Trump was elected. The hosts discuss the potential implications of a Biden presidency on the stock market, suggesting that a shift in administration could lead to a market correction of 10-20% due to what they term the “Trump premium”.

The Importance of Fundamentals

As the conversation transitions to the main topic, the hosts emphasize the importance of understanding when to sell a stock. They outline several key reasons that might trigger a sale:

1. Dividend Cuts: A significant reason to sell is a dividend cut. Both hosts agree that a dividend cut warrants a reevaluation of the stock’s fundamentals. For instance, European DJ mentions his decision to hold onto Shell despite its dividend cut, believing in its long-term potential in the energy transition.
2. Changes in Company Fundamentals: If the underlying business model or management trust deteriorates, it may be time to sell. For example, both hosts sold their shares in Disney due to concerns about management and the company’s future direction amid the pandemic.
3. Opportunity Cost: The hosts discuss the concept of opportunity cost, where the potential returns from other investments may justify selling a stock, even if it has not performed poorly.
4. Portfolio Cleanup: As investors accumulate stocks, they may find themselves holding too many positions. European DJ shares his goal of trimming his portfolio from 40 to 25 stocks to manage it more effectively.
5. Acquisitions and Spin-offs: The hosts note that when a company undergoes a significant change, such as an acquisition or spin-off, it may alter the investment thesis, prompting a reevaluation of the position.

The Psychology of Selling

The discussion also touches on the psychological aspects of selling stocks, particularly the difficulty of selling a stock that has significantly dropped in value. European DJ shares his experience with General Electric, where he learned the hard way about the risks of catching a falling knife. The hosts agree that understanding a company’s balance sheet and overall financial health is crucial when making selling decisions.

Strategies for Selling Stocks

The hosts outline their strategies for selling stocks:

• Evaluate the Investment Thesis: If the original reasons for buying the stock no longer hold true, it may be time to sell.
• Monitor Market Conditions: Keeping an eye on broader market trends and economic indicators can inform selling decisions.
• Consider Tax Implications: The hosts discuss the impact of capital gains taxes on selling decisions, particularly for high-performing stocks.

Listener Questions

The episode concludes with listener questions, including inquiries about investing in Asian dividend stocks and the role of high dividend, low growth stocks in a mature portfolio. The hosts express their willingness to learn more about Asian markets and acknowledge the potential benefits of incorporating higher dividend stocks as they approach financial independence.

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