Sell dog shares before they bite you

I’M OFTEN asked about the right time to buy or sell shares.

On the buying side, the answer is simple: when you have the money. On the selling side, the answer is a little more complex.

When it comes to buying shares it’s possible to make tonnes of money by getting your timing right. But there is simply no way of knowing when a share’s value will reach a low point before it starts to head north again.

So if you’re thinking of investing in shares, my advice is to skip attempts at market timing and focus on deciding which shares are right for your portfolio. Then buy when you have the funds available.

When it comes to the right time to sell, the answer is when you need the money. If you don’t need the cash, don’t sell.

Turning over your shares frequently will only stack up brokerage. Plus, you may miss out on dividends and potentially be out of the market during upswings.

Bear in mind too, on

❝ My advice is to skip attempts at market timing and focus on deciding which shares are right for your portfolio.

shares held for longer than 12 months, the tax man gives you a 50% discount on any capital gains. On shares owned for less than this, the full value of a capital gain is taxable.

Nonetheless, if a share is consistently underperforming, you really need to think about offloading it.

There are some important things to consider first though.

Some shares perform poorly in terms of capital growth but shareholders hold onto them because they are a reliable source of fully franked dividends. Telstra shares are an obvious example of this.

When selling shares to raise cash, a trap many people fall into is to sell their best performing shares rather than their underperformers. It’s often based on the view that the out-performers must be due for a fall while the underperformers are due for a lift.

Personally, I hang onto my long-term out-performers and ditch the long-term duds.

Persistently holding on to poorly performing shares, thinking it must be time for them to come good, reminds a bit of the old golf saying, “When you think your game can’t get any worse, it does.”

It’s the same with some shares: when you think they can’t go any lower, they do.

If you’ve got any dogs in your portfolio, consider getting rid of them before they start biting.