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To Sell or Not to Sell…
By JLP | April 7, 2006
I received the following email from a reader:
“I am still holding Earthlink, Intel, Cisco, as well as Gap and GE, all of which are now priced much lower than when bought. My theory has always been hold forever, but some financial gurus say cut your losses and reinvest. I hate to buy high and sell low, though. Any advice?”
My response:
First off, I am not a stock jock and I am not comfortable giving specific advice. However, I will say that aside from the fact that you probably should have diversified your money a little better, the companies in your list (with the exception of Earthlink) are pretty solid companies. You just paid too much for them. So, you have several choices:
1. Hold on to them hoping that eventually they will come back.
or…
2. Sell them all and buy something else.
or…
3. Add to your positions via dollar-cost-averaging.
Since I don’t know the specifics of your situation, I have no idea exactly how much these stocks are down from your purchase price. I can tell you that the problem with option 2 is that if you sell them at a loss, you need to have a gain somewhere else in order to take advantage of the tax situation.
The problem with option 3 is that this isn’t exactly a diversified list of stocks. You might be wise to invest any additional funds in mutual funds, index mutual funds, or exchange-traded funds.
I suggest you sit down with a financial planner and have them look over your portfolio. To start off, you might want to check for a local planner through the NAPFA website.
Topics: Investing | 1 Comment »
April 8th, 2006 at 8:58 am
You should also be asking yourself the following questions:
1. Why did you buy the stocks in the first place? Was it following careful research, a stock tip, a hunch, or what?
2. If you didn’t do careful research before buying, don’t make the same mistake twice. Do careful research now and figure out whether you should sell or not.
3. If you did do careful research in the first place, has anything changed that would have invalidated the decision to buy?
There are other questions you should ask, perhaps to a planner if you are no longer comfortable with the do-it-yourself approach. But these are a good foundation to the hold/sell decision process.