How To Avoid Panic Selling Your Stocks

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One of the crazy things about stock market investing is that we can unload a stock on a whim. We could spend three decades owning some Exxon stock passed down to us from our great-grandparents, collecting the dividends and adopting the perspective of a long-term business owner, and all of a sudden, we could sell it all after waking up in a cranky mood one day, logging into our brokerage account on our computer, typing in the three letters “XOM”, and then clicking “sell.” In the wink of an eye, you can undo decades of sedulous business accumulation. I find it scary how easy it is to undo a good thing.

Go old school and get a stock certificate so that you can have a physical representation of your stock holdings. Ever wondered why people are much less likely to panic sell real estate than their common stocks? Real estate is tangible and take a while to sell (as they say in the industry, it is a highly illiquid asset). Also, there is a physical representation. You can see the mailbox on the property you own, touch the brick, walk through the house, and so on. This “realness” allows you to keep in mind that you are the actual owner of something that has the capacity to be a cash generator, and it should make you much less likely to panic sell your real estate holdings.

When we are dealing with common stocks, we are on a much more abstract level. A company like “KO” is symbolized by two letters, and your personal ownership is typically on a computer screen. For some of us, that makes it difficult to remember that we are the part-owners of one of the ten most powerful businesses in the entire world. If you transfer your Coca-Cola holdings to a transfer agent like www.computershare.com, then you can receive a stock certificate for free.

This increases the chances that you will actually think like a part-owner of the business, and it also has the benefit of making your ownership stake less liquid, because you would have to physically mail in the stock certificates to your transfer agent, and from there, elect to sell your stock. That level of resistance can make it more difficult for you to sell.

Additionally, keep a physical dividend check from the company around somewhere in your house. If you have 300 shares of Coca-Cola and you have an $84 dividend check sitting around your house, you can remember that you own an actual dividend machine that sends you “free” money every ninety days. Most companies give you a year to cash your check, and from there, it is standard policy that companies will replace any misplaced dividend checks up to seven years after the payment date. If you get in the habit of keeping a ninety day lag on your deposits, you will always have a physical representation on hand that you are dealing with a very real business that generates profits despite the current stock market quotation at the time.

All else equal, it is a lot easier to get on a computer, type in “KO” and then click “sell” than it is to mail in a Coca-Cola stock certificate with fine calligraphy on it, discard the importance of the physical dividend check sitting in your possession, instruct the transfer agent to sell it, and end your ownership that way. The second you get physical representations involved, it is a lot harder to panic sell and do something stupid. Charlie Munger once said that living a successful life is a lot easier than most people think simply because it involves avoiding bad things a lot more than it involves actively doing good things. If you introduce some physical representations of your ownership stakes into your life, you will have created a nice little defense mechanism against panic selling in a moment of weakness. Cash machines are fun to own. Life is a lot better when you get assets on your balance sheet that pay cold hard cash every ninety days. Do what you gotta do to make sure those assets stay on your personal balance sheet for the rest of your life.

 

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23 thoughts on “How To Avoid Panic Selling Your Stocks

  1. Steve Hawkins says:

    I understand and agree with what you are saying about physical representations of stock ownership. However, I've been around the block more than a few times, and I've never once seen an actual stock certificate or dividend check. Can you even get those anymore?

    1. Tim McAleenan says:

      Yes. Own your shares through computershare.com. It allows you to request certificates and opt out of direct deposit and receive dividend checks in the mail. It is completely free.

  2. Monty says:

    I have been having issues with Computershare lately. I noticed they are charging me fees on multiple accounts that are suppose to be no fee. I also noticed they purchased HCN for a higher price than the daily high? The prospectus said they purchase shares on the 20th and the stock ranged from 65.09 high to a low around 43. The purchase price was 65.79, so I'm a tad worried about their billing practices. They also charged me a $15 setup fee for that account which is supposed to be free. The more I check my transactions the more I notice fees that aren't supposed to be there.

    1. Tim McAleenan says:

      Monty, that is interesting. You are about the 5th person I have heard from that has cited problems with Computershare. My experience so far has been fantastic, and everything has run as expected. Still, I find it curious that you and others have had problems. From personal experience, I love it. But I've heard some troubling anecdotes.

  3. Monty says:

    I just went through my older transactions as well. I'm noticing fees on all of them that I don't think should be there. I just checked all COP transactions and they are charging me about $5 in banking/processing fees each transactions. I'm scared to go through them all since I have 12 atm. The reason I transferred them from Scottrade was because it makes it a tad more difficult to sell, thus not acting on emotion as much. Something is up with all of their fees though that aren't supposed to be there.

  4. Monty says:

    I printed a few up. What's worrisome is its multiple transactions against multiple accounts. Unless I'm missing something, which I don't think I am. I'm not sure what your email is?

  5. You nailed it with the real estate comparison. I own several rental properties and though I've gone through some emotionally trying situations with bad tenants, I've never sold a property. There is a huge cooling period which explains why real estate has been a better investment than equities. However, after many years and converting to a dividend growth investor and buying income and not capital gains, I have developed a temperment much more conducive to owning shares. Temperment, temperment, temperment. Without the right kind your doomed.

    Thanks for getting the comments section fixed. This is the part I often enjoy as much as the awesome posts themselves.

      1. HAH! Never may that be the case!

        1. Tim McAleenan says:

          I just wrote up an article on your Conoco experience. I just wanted to make sure–you're a US investor right? I believe the prospectus might be different for non-American investors, and I do not want to criticize Computershare if maybe you're working off a different prospectus.

  6. Heyward says:

    I own four companies through Computershare and all of my transaction fees, commissions and setup fees have conformed to the prospectus'. I've had to deal with their customer service people on a few occasions and that's been a fruitless endeavor each time, but no worries as my questions didn't involve my money. Wells Fargo Shareowneronline has been a better and more rapid experience when it comes to buying shares.

  7. Monty says:

    I totally agree. Wells Fargo Shareowner online is much quicker and everything runs smoother, Unfortunately they don't have the selection that Computershare has. Tim, I sent you the email with a few of the fees they hit me with on the no fee companies. I have about 10 or so more as well. I called there support, but they are terrible.

      1. Monty says:

        You are right. There are only two that I notice are odd at the moment. The purchase for HCN is off when ycharts is showing the high for the 20th lower than the price I paid. Thanks for double checking after me. I'm getting old! I noticed that XOM doesn't have it on theirs and COP does. I'm guessing they just present it different. Sorry for the trouble.

        1. Tim McAleenan says:

          No worries. And I just deleted my most recent post, since I didn't feel comfortable mentioning your specific amount publicly without your permission. Yeah, I find it odd that the companies list the amounts that they themselves pay. Perhaps aimed at instilling a sense of gratitude, I dunno.

  8. Heyward says:

    BTW, your articles are always interesting and enlightening. I've been using them to help my daughter become acclimated to dividend investing the right way – i.e. investing for the long term in well managed businesses, not just stocks.

    Thanks for your efforts and insights!

  9. Heyward says:

    Yeah Monty, Computershare must offer really favorable terms to have so many of the best companies in their stable. I'm glad I haven't had the fee troubles you describe. Alas, I suppose it's only a matter of time 😉 It's been worthwhile if a little frustrating at times – they could make a few tweaks and solve most of my complaints – but try telling that to customer service!

    1. Monty says:

      Yeah they have a ton of companies. There are only 2 screw ups that I notice atm. Tim caught my error on COP. That makes me feel a tad better, since you don't want to worry too much about where your life savings is at. I'm very happy with Wells Fargo's Shareowner. They have much faster service. I also like to see the cost basis up like they have.

  10. George says:

    Great article, Tim. I have 8 DRIPs with Computershare so far, and generally am pleased with the service. The only one negative experience was with trying to DRIP Nestle–the online materials clearly state automatic investments are $0; the prospectus doesn't mention this option. Well, there are no automatic investments, it turns out. I spoke to a very condescending man at Citibank (since this is an ADR) who couldn't have cared less about the misleading materials posted on the Computershare website and told me I could make additional purchases by sending in a check and paying $5 per purchase. Thought I'd make others aware of this, esp. as Nestle is a DRIP and not a DSPP, so it's a bit of a pain to buy the initial share and transfer it (though Schwab will still transfer the share as a DRS for free–unlike the majority of other brokerages).

  11. says:

    Tim, don't ever think that! I'd respond to every one of your posts but I didn't want to be a pest! All of your posts are inspiring & we comment on how wonderfully thought-provoking & well-informed they all are! I've also added a couple of books to my "to-read" asap list! So thank you, once again, for all your posts. Just think every time you do write, there are those "out there" who do appreciate you & your time! Wish we knew a way to help you out if you ever needed it! Take care, Tim!

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