Life 101 Situational Finance: 5 Steps To Decide When You Should Sell Stock Or Bitcoin?
Authored by Chad. C
For access to more crypto terms decoded and other free resources to jumpstart your financial journey, join the Life 101 community with the button below. Access to the full Life 101 Ivy League Ecourse, taught by Professor Cope is available here.
Now for the reason we are here:
FOMO or Fear Of Missing Out according to the trusted resource of Wikipedia is social anxiety stemming from the belief that others might be having fun while the person experiencing the anxiety is not present. It is characterized by a desire to stay continually connected with what others are doing. As stimulus checks or “stimmys” are set to be distributed over the next couple of weeks, one could imagine that some folks may be enticed to “join the party” or double down on their initial investment into stocks or cryptocurrencies.
This is not financial advice, please consult with a financial advisor before investing any of your money. The assumption here is that before you invest, you have paid down “bad debt”, have the financial necessities accounted for (utilities, food, transportation, shelter), and have an emergency fund for unexpected expenses.
What isn’t talked about as much is the fear an individual has of being that person 5 years, 10 years, 20 years from now talking about how much of a specific stock they once had or how much bitcoin they once held (speaking from personal experience here, you will move past it, but you will have a hard time getting over it). No one wants to be that person that had $TSLA and sold it for a 2x profit. Recently “diamond hands” has been popularized as it pertains to the Gamestop (GME) fiasco. In crypto, “diamond hands” = HODL or hold on for dear life. The genesis of “HODL” originated in a December 2013 post on the Bitcoin Forum message board by an apparently inebriated user who posted with a typo in the subject, "I AM HODLING." This mantra within the crypto space you will hear when things are tumbling down. Admittedly, it has worked for me and I am forever thankful for taking the time to google what “HODL” actually meant in 2016. However, as more people enter the space, the internal debate you may come across is whether to HODL or not. This decision should come secondary to your original plan and goals that you create for yourself.
Side Note: Congratulations to all the Hodlers out there. 366 days ago, Bitcoin was $3,800. It has now reached $60,000. There were many reasons and opportunities to sell, but the long term vision or plan kept you in the game.
If you were ever a patron of casinos, you may have heard the mantra that “it is more important knowing when to walk away from the table than knowing how to play the game”. Having an exit strategy when you invest in these spaces is critical for your peace of mind and many times, your bank account. As intuitive as this may seem, it is harder to actually execute an exit strategy without discipline. It is like traders who tell you to buy low and sell high. Duh, if it was truly that easy, Warren Buffet would just be an average joe. So here are a few steps to implement and execute your exit strategy.
Get in tune with your “why” for investing in a particular space.
This very well could just be that you want to make money. I like money, it is nothing wrong with admitting it, but there are millions of opportunities to make money. You need to get more specific on the reasons behind your investment into a sector. Do you feel you have familiarity with this sector? Why do you believe this sector, ticker, or coin will grow? Iterating out ten years from now, can you envision a future where this investment could thrive? These are just a few questions you may want to ask yourself before diving in headfirst.
Poke holes in your thesis or reasons why your “play” won’t work.
Critiquing your own thesis from different perspectives is a great way to vet the decision you are about to make. Most individuals can not see beyond the confines of their own experiences and perspectives, so leaning on an accountability partner(s) to “keep it a stack” with you is a great way to get an opinion on a play from an individual who isn’t invested in you being “right”. Why won’t this work? Have you done a SWOT analysis (strength, weakness, opportunities, threats)? Does this make sense from a mathematical/numbers perspective? Have you consulted a financial advisor? This is a perfect time to link back up with that acquaintance who always has something negative to say and to tap into the pessimism.
Come up with a plan for the investment and write it down.
Write down your goals with this investment. Take into consideration the potential tax implications of selling a particular investment before a certain period of time (there are tax advantages for holding things longer than a year). What is your target price and what is your exit price? How frequently do you plan to reevaluate your thesis? A lot of this seems tedious, but building this habit could streamline your learning curve.
Revisit your plan and thesis frequently and ask yourself what, if anything, has changed?
This last year alone should be a clear indicator of how fast things can change. Market sentiment or the general prevailing attitude of investors about the anticipated price development in a market can change over a short period of time. This sentiment is the accumulation of a variety of fundamental and technical factors including price history, economic reports, seasonal factors, and national/world events. You should always be aware of what is going on in an individual sector. READ READ READ. The more you read about a topic, the more comfortable you will feel with your decision, or you will realize that you may have been looking at things wrong and you should adjust accordingly.
Kill your ego and continue your quest for knowledge.
Act like a robot. When you reach your target, trim or exit the play according to your gameplan. Your ego will tell you to get more out of a play. Revisit your goals and more specifically your “why” behind investing and implement the plan that you curated. Your ego will also have you staying in a situation that is bad for your bottom line. Coming to terms with being wrong is easier said than done. The faster you can make decisions based on analysis rather than feeling, the more money you can gain. This may be one of the few areas where you should ignore your gut and utilize your plan that you created before your goals your realized.
There is no cookie-cutter way to address or attack your finances. The reality is: you will have to work hard to earn money, twice as hard to keep it, and three times as hard to grow it. Seek out mentorship from individuals that you have seen handle their finances well.
Our goal at Life 101 is to equip individuals with the financial tools to navigate life by democratizing access to information. If you are interested in finance, subscribe to our free newsletter below. For access to more crypto terms decoded and other free resources to jumpstart your financial journey, join the Life 101 community.