Do you Know the Reason Why you Sold your Shares?

Do You Know the Reason Why You Sold Your Shares?

At first glance this sounds like a stupid question but surprisingly enough there are actually traders who are not really aware of the reason why they did sell in the first place.
Let's look at a few reasons why. Perhaps you might recognise a few of these reasons in your own trading history.

The first major reason funny enough is to make a profit. For isn't that the main reason why we are trading in the stock market in the first place. Aren't we? Though I must admit I wonder sometimes looking at the irrational behavior of some traders you see currently trading in the market place.

Taking a look at the current behavior of the Australian Stock Market over the last month you will have seen thousands of shares being sold off at a loss. Two of the main reasons for this were panic and fear.

There is an acronym that I am very fond of and that is the one for fear. It is "False Expectations Appearing Real." And this is definitely occurring all the time.

A great example is when the market took a turn for the worse recently and share prices started to go downwards, the traders mind became paralysed by fear. Their immediate reaction was to sell their shares, this action immediately crystallised a paper loss into a stark reality.

If they had taken a moment to realise that this was only a short term occurrence and if they had also remembered the past history of the stock market they might have remembered that there have been downturns before only to see the stock market bounce back again to a higher level than previously.

A worse case scenario which often occurs all too frequently, particularly of late, was those traders who were utilising margin loans to invest in shares and for what ever reason were not able to meet the requirements of a margin call are were forced to sell their shares at a loss whether they liked it or not. They are still hurting today.

Another reason that is becoming more prevalent is when greed plays a part in a share holders reaction to an announcement by a company who they feel has not met with the traders profit expectations. Their attitude seems to be "stuff you! And, “we'll teach you a lesson,” and they go and sell off their holdings in that particular company sometimes at a loss.

Crazy reaction to my way of thinking, you are cutting off your nose to spite your face.

A great example of this was Leighton Holdings (LEI) who only this Friday announced their 6 monthly profits up to December 3Is' 2007.

Profit was up from $190.6 million up to $250.7 million.
Revenue was up from $5.7 billion up to $6.56 billion.
An interim dividend was declared up from 45 cents to 60 cents. An upwards increase of 30%.

The reaction to that statement was that in the first 90 minutes of trading the stock was sold off and dropped 17%. At close of trading sanity prevailed and the stock bounced back to an overall loss of 5.5% on the days trading.

As to why that happened I haven't a clue. Obviously quite a few traders, judging by the volumes involved, weren't happy with the result and for whatever reason decided to sell off their stock causing this dramatic drop in the share price.

Do you see this as logical trading. I just wish all my stocks performed as well as Leighton has.

Hopefully you can see what I am getting at. There are no doubt more reasons why a trader sells than I have covered in this article. But ultimately it is up to each individual trader to have a preconceived idea in place as to what price they wish to sell at, and most importantly to know WHY they are selling.