When is the best time to sell an investment?

This week marked the publication of my 50th Investment Outlook, a half century of quarterly market overviews that I started writing at the beginning of 2014. I’ve got plenty wrong over the past 12 years, but I’m pleased to say that the very first edition pointed to the US and Japan as the most attractive stock markets at the time.

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Along with gold, the Nasdaq, S&P 500 and Nikkei 225 have done around twice as well as their counterparts in the rest of the world over that period. Getting the big calls right and sticking with them is half the battle.

We were in a very different world then, however, just five years on from a devastating financial crisis. A dozen years later, the bull market is longer in the tooth. Perhaps unsurprisingly - as a mature bull market faces down a still unresolved Gulf conflict and global energy shock - many of the questions from our investors have been less about what to buy than whether to sell.

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As one of our clients said: ‘the subject of buying investments is a well-trodden path, but there seems to be very little on the topic of selling. What’s your view?’ Like all the best questions, this one is deceptively simple and easier to ask than answer.

The first reason that selling is more difficult than buying is that it is far easier to get it wrong. In part that is because the market’s ups and downs are not symmetrical. Markets often drop rapidly and recover more slowly. If you miss the bottom of the market by three months, but prices continue to rise for another three years, you’re unlikely to be fussed. But miss the first month of a six-week bear market and you’ll be getting out close to the bottom. Selling is riskier than buying.

The second reason investors are fearful of selling badly is that the sale of an asset is just the first of two equally important transactions. It is easy enough to get out of the market, but you then have to get in again. And timing the second part of the transaction is hard. To buy back into a market that has fallen means swimming against the current of market sentiment. There was just one question in our latest Outlook Q&A on buying back again. It was a contrarian outlier. It is hard to invest when everyone else is running for cover.

The third problem for a seller of investments is knowing what to do with the proceeds. Chances are that if you are happy to get out of one investment then the alternatives also look unattractive. That is even more the case when bonds and shares are both responding negatively to rising inflation and interest rate expectations. Investors have looked in vain for safe havens over the past month.

One of the reasons why investors struggle with knowing when and whether to sell is that very occasionally it does indeed make sense to do so. March 2000 was one good example. March 2008 would have been another. If the market is going to fall by 50% or more, you are better off watching from the sidelines.

Unfortunately, those times are extremely rare, even if you can assume that you’ll get out quickly and back in again close to the bottom. More often, you would be much better off ignoring the temptation to act - either because your timing will be off, or because the market does not actually fall that far before returning to its long-term uptrend. There is much to be said for doing nothing.

There tends to be more written about buying than selling because the case for investing is generic while the reasons to sell are usually personal. Invest with a long enough time horizon and it is always a good idea. Other than during a once-a-generation bear market, the reasons to sell tend to be specific to an individual’s circumstances - their age, their tolerance for risk, whether they simply need the money.

Selling an investment meets a psychological need, so it is less well suited to the objective measures used to justify long-term investment - the superior long-term returns of equities or the cost of missing the best days in the market. All of these are true, but they are irrelevant if you are lying awake at three in the morning.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.