Portfolio management lessons: don’t sell all at once

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Was talking to this to a close friend yesterday. My rationale of “not selling all at once” is because: it’s usually happens a stock (or something else) will go up in price after a person sells it. Very simple.

Appearently that’s what happened to some Tongkang Zijin shareholders in recent years (FT article “Woes after a windfall“). The story is a bit long, so let me summerize. Apprearently in June 2001 the residents in Tongkang villiage (in Fujian Province) received around Rmb1,338.85 ($196, £117, €138) Zijin stock for the compensation of their land use right. At the time Zijin was not in good financial shape and its stock was not listed. Eight years later, after the public listing at Hongkong and Shanghai (and fundamental change of the business), the stock is worth Rmb 800,000. Obviously not everyone kept the stock. Quote FT:

Of the original 1,068 villagers, around 230 had already sold out, for prices ranging from the face value of Rmb1,338.85 to Rmb 652,000 ($95,000). “Some people who sold early regret it so much they want to jump in the river and drown,” says You Facai, whose household had sold one allotment for Rmb 100,000 to build a new house but still retained seven that were together worth Rmb 5.6m, an unthinkable fortune for a subsistence farming family in an area where a brand new 100-square-metre apartment in town costs only around Rmb 250,000.

So the lesson here is: don’t sell all at once.

Personally I can think of two reasons people sold out the stocks (the lottery ticket they got for giving up land rights).

1) They need money. But this is lame for people sold it at Rmb 1300, because most people can make that money by a month’s work at toy factory.

2) People feel disgusted (by the amount of stock being compensated), they just want to get rid of it and move on. Emotion should never be a rationale behind a investment decision, not to day that is a lottery ticket associated with giving up land rights. A very special lottery ticket.

This story itself is very unique and the kind of reward does not happen in stock markets, but I think we can all learn a few things from it because in many instances, we could make similar mistakes. Your take on this?

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