This article is an answer to the reader's question at the invitation of Meng Yan. The original question is as follows: reader @ Wang Jingping's question. She asked the question of "selling" in investment: how much is the profit? How to determine the timing of the sale? Using a fixed investment can avoid the timing of "buying", so what is the basis of "selling"?

My answer is as follows:

There is a proverb that says that those who will buy are apprentices and those who will sell are masters.

But to answer this question accurately, we can't start with the question itself. As I often say, we cannot solve the problem of this floor on the same floor, but we have to go up to the next floor. What are you doing on the next floor? To ascend another storey to see a thousand miles further; Ascend further, were you to look farther. The purpose of going upstairs is to look at things from a systematic point of view.

If you want to understand selling, you can't just look at this isolated act of selling.Of course, selling is not an isolated point, but a part of the whole trading system.. Like a pearl in the middle of a pearl necklace, you can't look at it without its context.

So we're going to talk about selling. First of all, understand that selling actions match the underlying logic of your trading system.

In order to illustrate this problem more clearly, let me give you a controversial example, that is, stop loss.

Do you want to stop the loss in the investment or not? So far there is no final conclusion on this point, proponents and naysayers can each cite a hundred reasons, as well as countless history of blood and tears and vivid cases.

It can be said that if we argue in this way, there will not be a clear result in another hundred years. Because the act of stop-loss itself is not right or wrong.

1 Stop-loss selling

Do you want to stop the loss?

It depends on whether it matches your buying action and the underlying logic of your entire trading system.. When it matches, it is right, and when it does not match, it is wrong.

For example, the reason you buy is that the trend is coming, the price of a stock is above the 20-day moving average, and you buy according to the logic of the trend trading system. So when prices fall below the 20-day moving average, this trend buying logic is no longer valid, shouldn't you stop losing? Since you are buying with a trend, it is only natural that you should stop losing when the trend does not exist.

But if the reason you buy is value, it's different.

For example, a stock, you think its intrinsic value is 10 yuan, you buy it when the price is 8 yuan, and after a period of time the price falls to 7 yuan. Isn't it more likely that prices are undervalued? According to your undervalued buying logic, you should buy more. Isn't it absurd to stop at this time?

Of course, this is not to say that value investors can not stop losses, it means that value investors can not stop losses according to the decline of the price, can not use the standard such as shape to stop losses, that is called the wrong head. If you buy on a value-based basis, you should stop losing only if the company's fundamentals go bad and your value buying logic doesn't exist.

Stop loss is a selling situation, and if you understand the theoretical model behind this situation, you can correctly understand the selling behavior.

Let me briefly sum up that there is no right or wrong stop in itself, and you have to put it into the overall picture of your trading system. If the stop-loss action matches your buy action and the underlying logic of your trading system, that's right, otherwise it's wrong.

See here, I believe you are ready, let's talk about selling in a broader sense.

When should I sell it?

The correct answer isFirst of all, what is the underlying logic of your trading system? Then match the corresponding selling strategy according to this system.

Generally speaking, there are three situations of selling, which are called stop-loss selling, stop-profit selling and losing performance-to-price advantage.

The situation of stop loss has been mentioned earlier, so I won't repeat it here.

2 Stop making a profit to sell

Let's take a look at Zhiying.

Similarly, at the bottom, we divide all trading systems into two types, one is trend, the other is value, let's talk about it separately.

In a trend system, your reason for buying is that the trend is coming, and the magic weapon of your profit is to cut off the loss and let the profit run. Therefore, there is generally no target to sell in the trend tracking system, which does not mean that you think subjectively that the stock will sell as much as it costs, because the trend may still be there at that time.

Stop profit selling, which is more often used in the trend system, is a dynamic tracking stop profit. That is, the stock falls by one percentage from the highest level, you think the trend is broken, and sell at this time.

In a value trading system, the reason you buy is that the price of the stock is undervalued, then the corresponding reason for selling should be that the stock price is overvalued. Or take that example just now, if you calculate that if the intrinsic value of a stock is 10 yuan, you buy it for 8 yuan. So when the stock rises to 15 yuan, because its price is obviously overvalued, you sell it. But the exact percentage is overestimated, depending on everyone's understanding of the fundamentals of the company and the grasp of the emotional side of the market, which cannot be generalized.

The above mentioned stop the profit to sell.

3 Lose the advantage of performance-to-price ratio to sell

There is also a third selling situation, which is sold because of the loss of sufficient performance-to-price advantage, which is basically used in value-based trading systems, because trend-based systems do not look at performance-to-price ratio, but only look at the trend itself.

In fact, this method is used by many value investment masters, such as Buffett, Templeton and so on.

You will pay attention to many stocks in the market at the same time. When the stock price of a company A goes up, its price is already overvalued, but you don't know whether it will rise next. In fact, there is no fixed standard for overestimating how much should be sold.

But at this time, there is another company, company B, whose share price is obviously in a state of substantial undervaluation. at this time, you sell company an and buy company b, which is tantamount to concentrating your assets to a place with high performance-to-price ratio. this is in line with the underlying logic of value investment.

In fact, this may be the most common way for a typical value investor to sell, because you may never know how much to overestimate how much to sell, which is very difficult. However, by comparing the performance-to-price ratio among different companies, the selling is obviously overvalued and the buying is obviously undervalued. The operation of this switch is relatively easy.

And Templeton goes a step further on that basis, he says. Not only do you have to do it, but you have to do it globally. So he once went to the bottom of Japan and South Korea, until after making a lot of money in the Japanese stock market, he sold Japanese stocks and invested in other regions. Based on the comparative logic of performance-to-price ratio.

As for when to decide when the investment should be sold, it will be clear at a glance if you use the method I mentioned above to judge.

At present, most of the fixed investment strategies in the market are the fixed investment of the value category, that is, buying relatively undervalued, cost-effective indexes. Since it is the fixed investment of the value category, it is right to sell with reference to the logic of value.

And some fixed investment systems, in fact, have lost the cost-effective advantage of selling this one, embedded in the fixed investment strategy.

If it is such a system with its own strategy, then in theory you no longer need to take the initiative to sell. If you are investing in your own index fund, then you should make a selling strategy with reference to the matching principles of the value trading system.

4 Science and art sold

Let me briefly summarize the science and art of selling.

Basically, selling can be divided into three situations: stop-loss selling, stop-profit selling and selling that loses the advantage of performance-to-price ratio.

The single action of selling cannot be judged as good or bad, it must match the underlying logic of your entire trading system. In the most austere way, we classify all trading systems into trend category and value category, and then match your selling strategy, and it will suddenly become clear.