You probably could not have predicted the 1929 stock market crash, so don't think that you'll predict the next one coming up either

If Warren Buffet doesn’t know just when to sell stock, how will you know?


If you own shares in individual companies, you should race to your nearest stock exchange and sell them all. I’m not saying that you should not own equities in your portfolio. Rather, owning individual shares is a crummy way for normal people to make money. Why? Because regular people (those without prophecy) lack the three critical elements required to trade their own stock portfolios. The conclusion of this discussion is that it’s fine to have stocks in your portfolio, but not in the form of individual companies. If it’s appropriate for you to have equity exposure, use mutual funds and/or money managers to handle the day-to-day operations.

What are the three reasons why you should sell your stocks now?

 You don’t have the time, talent, and temperament to manage a stock portfolio. It’s nothing to be ashamed about. Most people are lacking at least one, and often all three of these requirements.

Do you have many hours each day to peruse the investment news? Probably not. You’ve got a job, a family, or a hobby perhaps. So can you really commit to watch the market, giving each stock the attention it deserves? I’m guessing not.

How about talent? Don’t take it personally, but you may not know how to analyze a balance sheet, read a prospectus, and understand the footnotes of an annual report. That’s OK. Most people can’t do that. But should most people be managing money? No. Everyone wants to find up and coming stocks, but identifying these beauties requires skill. Ask yourself this question: If your neighbor came up to you and said, “Hey Joe, you look like a smart guy who knows all about the stock exchange. Can I hire you to trade my stock portfolio?” would you accept that job given your current investment education background? If you have any scruples, you would surely decline the offer. So if you won’t manage money for someone else, why will you manage it for yourself?

Finally, to trade stocks with your own money, you need a heart of steel. You can’t panic when the markets tumble, and you can’t start dancing on the table tops when your stock list jumps up. You need a Chesley Sully kind of calm even in the worst of situations. (He’s the pilot who carefully crash-landed a U.S. Airways plane into the Hudson River in 2010.)

Without all three “T’s” (time, talent, and temperament), don’t try it

Individuals who trade their own accounts on average underperform the market. Just ask world famous behavioral finance professor Terrence Odean. I interviewed him on my radio show, Goldstein on Gelt. (You can see the interview on Building WealthYouTube channel.) He has studied millions of stock market trading patterns from the stock market crash of 1929 to the 1987 stock market crash and all the way until today. His conclusions? People who trade their own portfolios mess up time and again.

If your financial plan calls for equity exposure and if you have a high tolerance for risk, be sure to use professional money managers to handle the specifics. I do, and I’ve got 20 years of experience on Wall Street. As they say… don’t try this at home.


Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.