A simple idea
This is a simple but, in my experience, often overlooked idea in investing. Let’s put aside the reasons for buying and selling and simply assume that we have decided that we want to remove one holding from our portfolio and replace it with another and that action is not time-critical. There are three ways to do this.
A simultaneous buy and sell
The easiest and least risky (assuming that the securities are liquid) is to place simultaneous buy and sell orders. This is what I think most people do on most occasions. But it’s not the only tactic.
Trading the securities
The others are equally straightforward but, if you turn out to have a talent for them, can be worth the small extra effort they take.
You can either buy first and sell later, or sell first and buy later. “Later” can mean a few days after or a week or even longer, unless you are buying first and don’t have a cash balance large enough to pay on settlement day for the securities you’ve purchased. In that case, “later” mans a subsequent trade on the same day.
You would buy first and sell afterward if you think the market is in an uptrend. By delaying the sale for a few days, you might be able to pick up 3%-5% on the transaction.
You would sell first and buy later if you think the market is in a (temporary) downtrend or is undergoing a correction. Again, if you develop a talent for this sort of thing, you might end up better off by 3%-5% by delaying the purchase.
In a trendless market
In a trendless market, you might determine that the security you want to buy is at the top end of its trading range. If so, you could wait to buy until the security is at the lower and of its range. You might make a similar determination about the security you want to sell. You would only transact when the security is at the top end of its trading range.
No need for an “all or nothing” approach
If this is an important portfolio shift, where the consequences of being wrong in your trading assessment are severe, you could hedge yourself by doing half the transaction simultaneously and try to trade the rest.
Trying this can be a simple as placing before the opening of trading a limit order below the market for the purchase and above the market for the sale, and then checking on both as the day progresses. You can even practice before trying this for real by doing imaginary transactions in what professionals call a “paper portfolio.”
Obviously, if you don’t have the time or patience to trade, or if you end up being wrong most of the time, then stop–don’t do it anymore. But if you find out you have a knack for this, timing buys and sells can be a useful source of extra performance.