Stocks Tanking, Should You Sell?

Hi All,

Well, if you were in the market during last months bloodletting and didn’t know if you should sell, you’ve probably found yourself wanting some guidelines for selling.  

Other than raw panic, here are some reasons to consider unloading a stock: 

1) You don’t know or understand the company.  When you have shares in a business, legally and properly you are a fractional owner.  This suggest you should have a good sense of the company’s business model and its profitability.  So, if the stock declines, it might be due to the market’s reaction, but it could also be due to deteriorating fundamentals.  In any event, if its due to declining fundamentals, consider selling. 

2) You don’t understand the market.  If you find that you’re scratching your head over the movements of the markets, consider investing in other assets.  Its entirely possible to become wealthy by starting a business, investing in bonds or owning a lot of real estate.  If you don’t understand the stock market, you are entirely justified in selling your stock. 

3) If you need the money.  Stock prices can be notoriously volatile in the short term.  If you need money in the next few months and have decided that selling stock is a good way to get the funds,  by all means unload your shares and move them into an money market account. 

4) You can do better elsewhere.  If you are on top of your investments and believe, based on your analysis of your holding and economic conditions, that you can get a better return in a different company or type of asset, sell your shares.  This is controversial because its market timing.  Many people argue that one should not try to time the market, or should remain diversified by investing in mutual funds and ETFs.  This is sound advice.  However, if you want to give yourself the maximum opportunity to get wealthy, you’ll need to have a degree of focus that mutual funds and ETFs don’t really provide – and you’ll have to actively manage your stocks – at least a little bit.  So, if you believe you can do better elsewhere, hit the sell button.

Thanks,

James