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What Is the Best Time to Sell a Losing Stock?

By Investing.com (Francesco Casarella)Market OverviewSep 05, 2023 04:46AM ET
www.investing.com/analysis/what-is-the-best-time-to-sell-a-losing-stock-200641559
What Is the Best Time to Sell a Losing Stock?
By Investing.com (Francesco Casarella)   |  Sep 05, 2023 04:46AM ET
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  • Before investing in a stock, it's crucial to have a plan for managing losing positions
  • But before you do that, it is critical to examine the reasons behind your decision
  • Ultimately, there is no one-size-fits-all answer to managing losing positions

Investors often ask me how they should handle stocks that have experienced long-term declines that have lasted for weeks, months, or even years.

The fundamental question on their minds is how to manage losing positions.

Well, the answer is simple:

It Depends!

There's no one-size-fits-all answer because every stock and every investor is unique. However, all strategies should have a common starting point: the initial investment.

The inability to manage declining positions often stems from a fundamental mistake made at the outset. Investors are often unable to explain why they bought a stock.

The answers are often flawed.

  • "I work at this company."
  • "My cousin/uncle/friend just invested in it."
  • "They said it on TV/newspapers/site."
  • "It has gone down a lot, it will go back up."
  • "It's gone up a lot, it's going to keep going up for sure."
  • "Everybody is investing in it."

These justifications don't hold up, and when things take a turn for the worse, it's easy to feel lost.

How Should You Manage Losing Positions?

The approach varies depending on whether you're focused on the short-term (like a trader) or the long-term (like an investor).

If you're operating in the short term, one of the most sensible steps is to set a stop-loss. The old trading adage, "Cut losses and let profits run," still holds true.

Another option is fractional entries, which is quite distinct from randomly averaging down at a loss. Fractional entries involve determining your strategy in advance: how much capital to invest, how many entries, and at what levels or under what conditions.

If the stock continues to fall, you simply follow your predetermined strategy.

Consider selling at a loss to offset losses. Losses are part of any strategy and cannot be avoided. By planning how to use losses within your overall portfolio, you can recover them from gains in other stocks, taking advantage of tax benefits.

Lastly, consider the behavioral aspect, which is often overlooked but critical. Would a 20%, 30%, or even 50% drop in stock value cause you to panic, or can you remain calm?

Remember, some of the best opportunities arise during bear markets. If you understand a stock, buying it at a discount can be a great choice.

As emphasized earlier, planning and understanding the valid reasons for investing in a particular stock are crucial. Random investing is not a strategy.

***

Disclaimer: This article is for information purposes only; it is not intended to encourage the purchase of assets in any way, and does not constitute a solicitation, offer, recommendation, opinion, advice or investment recommendation. We remind you that all assets are considered from different angles and are extremely risky, so that the investment decision and the associated risk are specific to the investor.

What Is the Best Time to Sell a Losing Stock?
 

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What Is the Best Time to Sell a Losing Stock?

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Comments (8)
Randy Owens
Randy Owens Sep 06, 2023 5:53AM ET
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Hopefully, you have a dividend paying losing value stock. Continue to reap a nice return while waiting for the next rebound cycle. Playing the LONG game is your best shot to come out in the black, a LONG ways down the road.
Ge K
Ge K Sep 06, 2023 2:13AM ET
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When the second red candle is formed on the 1day:2m chart!
Solid Basic
Solid Sep 05, 2023 11:21AM ET
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If you are investing on fundamentals and not trying to play momentum and technicals, when your stock went down, the question is, *why* do you think it went down?  If the whole market went down, that's not about the individual stock.  If the company had serious bad news ... the situation has changed and you have to evaluate the current price vs current situation.  If the price just went down and you aren't sure why, you have to ask yourself if you think that means that someone knows a lot more than you and somehow that changes your fundamental evaluation.  If not, then the price decline in itself is not a reason to sell.  JMO.
MUBIRU REGAN
reaganmubiru82 Sep 05, 2023 10:43AM ET
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Hello praise God my name is Reverend REGAN MUBIRU form Uganda
Kedar desh
Kedar desh Sep 05, 2023 9:32AM ET
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I bought Disney @92.. i will buy some more @ 82
Darren Atkinson
Darren Atkinson Sep 05, 2023 9:32AM ET
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It's $82 now.
tom kazz
tom kazz Sep 05, 2023 9:30AM ET
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Joe Briben loves destroying stocks.
Eze Quiel
Eze Quiel Sep 05, 2023 8:21AM ET
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I bought Disney in December 2020 at Usd 147 knowing almost nothing about investments. Now my question is, do I buy it again at 80 or I wait for it to recover the one I already have?
Jose Desseno
Jose Desseno Sep 05, 2023 8:21AM ET
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buy more for average your entry price
Joseph Obrzut
jzut Sep 05, 2023 8:21AM ET
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Yes. Average down. They are not going out of business or bankrupt.
Emre Adıgüzel
Emre Adıgüzel Sep 05, 2023 6:44AM ET
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Thank you
 
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