The secrets of selling an investment at the right time

Luke Johnson, our favourite weekend journalist, shared his insights this weekend on the best time to sell your investment. Here’s his Animal Spirits column, as produced in the Sunday Times…

My biggest business mistakes have been selling assets too early. The most successful capitalists know that the greatest rewards come from compounding gains over the long run. Indeed, one of the wisest pieces of investment advice is to “run your winners”. Yet there are always reasons to break this rule.

A brilliant recent article entitled The Psychology of Money, by Morgan Housel, explains the phenomenon succinctly. For most individuals, making investment plans stretching many years into the future is difficult, since life doesn’t proceed as one expects. People change jobs, homes, cities, get married, have children, inherit, become ill. Any of these big events can interrupt the magic of compounding your investments — because personal circumstances dictate that you need to sell a home, a portfolio, a business — and that can kill returns.

Another grave danger to compounding is boredom. I am certainly guilty of this weakness. I have sold great companies simply because I had owned them a long time. An example was Integrated Dental Holdings, a business I co-founded. After 10 years and an eventual big gain, it felt like a good time to exit: in fact, the business was poised to grow dramatically in value for at least five more years.

Cynicism is also a threat to compounding. I have seen many investments go wrong after five years or so, especially in fickle industries such as hospitality. When my then colleagues persuaded me to sell the restaurant operator Strada, I thought its tremendous early expansion would not be maintained. Yet for the next two years, it boomed, under the stewardship of my ex-colleagues, who remained heavily involved. Interestingly, Strada did fall out of fashion, but not until some years after my premature exit.

I have sometimes sold assets because they proved troublesome — but foolishly selling just as a turnaround was about to happen. One’s experience with a business profoundly influences your perspective of its future — even if conditions are becoming dramatically more favourable. Sometimes you are blinded to improved prospects by scars from the past. In such situations, knowing the history can be a disadvantage.

I have sold businesses too early when I decided I did not like the industry — even if it was clear that there was more money to be made. Years ago, I owned both bookmaking and cheque-cashing shops, but I realised that each essentially dealt in misery, and that there were more decent ways to make a living. Consequently, I was happy to dispose of them without regret.

Frequently I have sold too early because my partners wanted to sell. In some cases, they needed the money to buy a home, in other cases to pay off debt, or they were obliged to sell because they were ill. On almost every occasion, especially if my partners are actually running the company, I sell out when they do. Once this definitely worked in my favour: a partner and I backed an engineering concern. He fell out with the management, and from a sense of loyalty I resigned from the board and sold out together with him. We managed to secure a price very close to the all-time high — by sheer luck.

I think of myself as an optimist at heart, but most of us suffer from bouts of pessimism. Sometimes that has persuaded me to sell things I should have kept. I remember selling a London house far too cheaply more than 10 years ago, thinking the property bubble in the capital was bound to burst soon. That was a pretty dumb move.

Compared to many investors, my capital is patient money. Normally I want at least a three-year horizon for any investment, and the best ones I typically hold for two or three times as long. Selling always involves costs — commissions, fees, taxes and so forth. Finding attractive assets to buy is very hard, so when you alight on a solid performer with sound expectations over the long run — stick with it.

If your entire net worth is tied up in a business you’ve built, you should bear in mind the importance of diversification. A new book called Lost and Founder, by Rand Fishkin, describes how the author turned down an offer in 2011 of $25m for his company when it had achieved only $5.7m in annual revenue. The business has grown since then, but his stake could well be worth less now — and he still hasn’t had a payday.

Such sobering tales remind one that a profit remains a profit.

Luke Johnson is chairman of Risk Capital Partners and the Institute of Cancer Research. You can read the original article here.

Beyond Accountancy

At Nordens, we're more than just accountants - we're business experts who can help you achieve your biggest goals.

Nordens Strategic

Our specialist strategic division at Nordens boasts some of the leading entrepreneurial business minds in the country. We cater towards delivering consistent success stories, whilst helping businesses achieve above and beyond their initial goals.

Through highly-tailored guidance, coaching and advice, Nordens Strategic are able to define exactly how your business can reach new levels of success.

Regardless of how you define ‘success’ for your business, our strategic service is guaranteed to bring about real and lasting change. By partnering with some of the UK’s top business coaches, we’ll steer you along the path to a greater future.

Accounting 2 You

Every business, no matter how big or small, needs to make the right decisions, and how to best manage your accounts can put huge question marks over your business. Accounting2You is here to take that pressure off and provide you with all the answers you need.

Our bookkeeping branch offers a fully inclusive, comprehensive service that you can trust. Since 2005, our specialist bookkeepers have been successfully managing the accounting of both individuals and small businesses.

With experts in payroll analysis, credit control and financial recording, Accounting2You will lead your business efficiently, and with real purpose, towards a prosperous future.

Voted as EXCELLENT - 9.9 out of 10 based on 167 reviews

Chris Dyer

Director - Metro Bank

Nordens are always very easy to deal with and extremely professional and efficient. I would have no hesitation in recommending them to my clients for their accountancy needs, no matter how complex they may be.

Read more reviews on Trust Pilot

Jamie Brown

Co-Founder - Chicmi Limited

Very good to work with - the team go above and beyond to make the accounts easy and efficient. They're all super friendly and a joy to work with.

Read more reviews on Trust Pilot

Simon Rose

Director - Rose Opticians

I have been using Nordens Chartered Accountants for 5 years and very happy with the service provided. All members of the team are very knowledgeable and have a wealth of experience which has proved very beneficial to my organisation

Read more reviews on Trust Pilot

Rebecca Bossick

Founder & Director - Physio LDN

Very easy to contact and put me in touch with the right person whenever I need to ask any questions. Extremely knowledgeable and can help me manage my various businesses whenever I need.

Read more reviews on Trust Pilot

James Aconley

Principal - Pauline Quirke Academy

Great accountants, always available to offer advice. The team have transformed my business.

Read more reviews on Trust Pilot

Christopher Wilce

Founder - Dataphone

Having worked with Nordens over the last 5 years, not only to look after my annual accounts but they have also provided outstanding professional advice. They have guided me through a Company share buyback with clear and objective advice. We have also been using Nordens strategic services for a couple of years, which has helped bring about significant improvements that exceeded my expectations. With experience of working with several local accountants over my 29 years in business, I’m very pleased with the service I have received from Nordens.

Read more reviews on Trust Pilot

Dave Hodges

Director - Linekers

Trusted our business with Nordens for over 10 years now and watched the company grow into the successful innovative business it has become today. Deservedly so. Every aspect of financial advice we need is always given promptly and with a smile. We have total confidence in all aspects of advice Nordens give. If you are looking for accountants, its a no brainer!

Read more reviews on Trust Pilot

Tony Charles

Founder - Foundation Sports Limited

A fantastic, modern, vibrant firm that care about the clients and their staff in abundance. It is rare to find an Accountancy firm with such vibrance and focus and relationships. It is no wonder they win award after award in their field.

Read more reviews on Trust Pilot

Peter Horlock

Managing Director - Prime Time Boilers

I have been with Nordens for many years now and they are a great accountants.

Read more reviews on Trust Pilot

Simon Cushing

Founder - Vivid Finishes

We have used Nordens for the last 5 years and have had a great service throughout. The guys are very passionate about what they do and have played a part in the growth of our company, highly recommended.

Read more reviews on Trust Pilot

Andrew Martin

Managing Director - AMD Interior Architecture

Great Service at Nordens from a friendly very approachable team Particularly Kirsty Willis and Joe Sword who have been helping us since we started the business in 2016.

Read more reviews on Trust Pilot

James Robinson

Director - Forma London

Nordens provide a first class service. We moved to Nordens last year and have been impressed with the level of service provided. Keep up the good work!

Read more reviews on Trust Pilot

Latest News

We've always got our ears to the ground when it comes to interesting, useful and topical information relating to business and accountancy.

Changes To National Insurance…
National Insurance is the bedrock of the state system, basically a tax on all earnings and self-employed profits from an individual. National Insurance Contributions (NICs) can be a confusing and complex situation for many, not...
Do You Need An…
We can all understand that the sharing or sale of an asset can be a complex process, especially when this isn’t done in the most amicable of situations. In order to make sure the process is as fair and unbiased as possible, an ...
Nordens TV

We love making videos that break down convoluted accountancy jargon into plain-talking, actionable and accessible facts.

Tax On Cryptocurrency? –…
I’m sure plenty of you have heard of cryptocurrency, especially the popular variants of Bitcoin, Ethereum, Litecoin and Cardano to name but a few. In fact, there’s thousands of different coins and tokens in circulation, with ne...
10 Easy Ways To…
Growing your business can often be an overwhelming and complex task, however by simply following some key guidelines you’ll place yourself in the best position to advance and cultivate success. Check out our Top 10 ways to grow...
  Why I Founded Nordens
Accounting 2 You

In November 2002, having sold our other business interests off earlier in the year, I decided to set up Nordens Chartered Accountants. The easy part was knowing how to do it, as I had established and built a smaller practice a few years earlier. The difficult part, for me, was not following the traditional accountancy path. Having run businesses, both successfully and unsuccessfully, I wanted to help business owners resolve their short term problems and work with them to achieve their longer term goals. Business has always been my interest and I love that I can help business owners achieve what seems like the impossible every single working day.

Mark Norden Signature

Mark Norden

We're Professionally Certified

Our limited company accountants have a range of qualifications from The Institute Of Chartered Accountants (ICAEW) to the Association of Chartered Certified Accountants (ACCA). We worry about the bye-laws, regulations and ethical guidelines of the ACCA so you don’t have to! That makes us an ACCA-accredited employer as well as a Professional Passport-accredited one!