One of my clients (let’s call him Jeff) is buying a new home, and in order to fund the deal he will need to sell a significant amount of his Microsoft stock. The stock currently makes up about 25% of his total net worth, and I’d been encouraging him to diversify by selling some of it and then buying a broader range of investments. But now he HAS to sell within the next few weeks in order to purchase the home.
If you’ve been watching the US stock market recently, you’ll know that it has been down and there has been a lot of volatility. Jeff’s Microsoft stock is now worth about $5 per share less than it was a few weeks ago, and he regrets not selling it at the peak.
But Jeff is a thoughtful guy; he asked me to share this lesson with you so that you can learn from it. “When you can plan in advance to sell off an asset, DO it!” he said. Take the emotion out of it and just sell off blocks every month, or at some regular interval which you schedule in advance. Don’t deviate from the schedule no matter what.
The corollary to Jeff’s advice came a few days later, the next time we talked. He had been looking back at where Microsoft prices were a few years ago, when he had sold off another large chunk. In fact, if he had held onto his 4,000 shares until now, they would be worth about $196k more than when he sold them in 2013. “Never, EVER look back. Don’t think about what could have been,” was Jeff’s advice. You will make yourself crazy doing that.
I would add a more general corollary: “no one knows how to time the peaks and valleys in the market, much less in one specific company’s stock, so stop trying.” When you need to rebalance or diversify your long-term investments, just do it and don’t look back. When you have the cash to buy, do it without worrying whether you are buying at the peak. It will pass that peak, anyway, whether it’s tomorrow or three years from now. Just get in the market and stay in, and you will be OK.
Don’t beat yourself up for not being able to predict what NO ONE can reliably predict. Don’t drive yourself crazy. It may not seem that exciting, but discipline is what wins the financial independence race. Speculation is for the folks who have money to throw away.
Many thanks to “Jeff” for sharing his story and what he’s learned from it. Our hope is that you will learn something, too, and maybe rest a little easier.