CIRCA5000 | KNOWING WHEN TO SELL

KNOWING WHEN TO SELL

By CIRCA5000 TeamBack to Mission Control

Investment updates • 3 min read 

Knowing when to sell

Knowing the right time to sell an investment is likely the most challenging part of investing. For long-term investors, the decision to buy is often reasonably straightforward: Pick themes that have a long-term structural growth story and then drip feed money into that market over time.

On the other hand, the decision on when to sell is much harder. Unless there’s a particular reason to sell, such as needing the money to buy a house, our selling decisions are often based on the past rather than the future. An investment may have performed well, in which case we might want to lock in some profit by selling, for example. Alternatively, a holding may have done badly and so it’s tempting to sell in order to avoid further losses.

Here’s the thing: This short-term focussed and sometimes fear-driven approach is generally bad practice, and may actually harm wealth accumulation. Instead, investors often benefit from holding steady and keeping future-focussed, while periodically reviewing their investment thesis to make sure it still holds. 

So what happened in 2021?

After a fantastic year for impact investors in 2020, 2021 proved to be more challenging. The absence of some key industries from impact indices meant that impact portfolios struggled to keep up with the profits generated by unrestricted portfolios.

In the US, over 30% of the market’s positive returns were driven by a handful of large tech companies: Alphabet (Google), Apple, Meta (Facebook), Microsoft, and Tesla. Meanwhile, the wider tech sector exploded and it was loss-making tech companies that did the best.

The absence of oil producers and finance companies in impact portfolios also played a role in the performance differential. Global oil prices soared and banks finally got an opportunity to boost profits as inflation picked up. Whilst the absence of the best performing sectors played a large part in the relative performance, some of the sectors that we do invest in as impact investors had a tough year.

Having returned 140% in 2020, clean energy fell by 24% in 2021. However, the graph below puts this performance into more context and only investors who bought at very inflated prices in January will have felt the full force of the decline in 2021.

Meanwhile, the education sector struggled with increased regulation in China and a booming jobs market in the US. The result was declining enrolments in full-time education. Share prices fell across the board.

But did the investment thesis change?

Whilst the stock prices of many companies changed, the investment thesis did not. The climate crisis continues apace.

“The next 1,000 unicorns won't be search engines or social media companies, they'll be sustainable, scalable innovators – startups that help the world decarbonize and make the energy transition affordable for all consumers.” Larry Fink, CEO of BlackRock, the largest Global Asset Manager

There are still millions of undereducated children around the world and people suffering from currently incurable diseases. The companies that can address these problems will not only provide a great environmental and social service, they will also create a tidy profit for investors who are prepared to support them.

So when should we sell?

The short answer is that there is never really a perfect time to sell if the global economy is expected to continue growing. As soon as one issue is fixed or opportunity spent, there will always be another chance to drive progress – and with that comes financial opportunity.

The market is set up to benefit those who are prepared to stick with it for the long-term. In turn, people and the planet can thrive as a result.

This article is for information purposes only and does not constitute financial advice. If you require financial advice please approach an independent financial advisor authorised by the FCA. CIRCA5000 does not provide financial advice and is an execution only platform.

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