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When Is It Time To Take A Loss In A Stock

The economy has taken a beaten in the last year. The credit crisis and the housing market were the leading cause of it all. It’s not surprising that what has happened in the last year is the result of greed and living outside of people’s means.
From the years 2002 to 2007 the growth in this country has been outstanding, but if you really take a hindsight look at it was it real growth or just a bunch of hype. People were taking advantage of the economy and borrowing more money than they could pay back. On top of that there were companies that took advantage of people who didn’t know better or were misinformed.
Now is the time to face the music. Many people are trying to get their finances and their lives in order by regrouping and/or starting over. I’ve read many articles in regards to homeowners who are trying to sell their homes before they lose it to foreclosure proceedings. They had a chance to sell last year, but thought that the offer price was too low and wanted to wait for their asking price. It seems now that they can’t even get what they were offered back then and are now behind the 8-ball even more.
The same goes for your portfolio. We all buy stocks and expect them to go up in value, but with the way the economy is going it hasn’t worked out that way all the time. If the stock that you’re invested in is part of your retirement account then it isn’t that bad to wait it out if your research is sound and the fundamentals are strong, but if it’s in a portfolio that is used to subsidize your daily living then it can be nerve-racking as well as scary.
The biggest dilemma you have to face is… Do you sell at a loss or hold on to see what happens? The choice can only be decided by you and you alone. Many people involve their emotions when they are faced with this and make their choice with those emotions. If you’re down down 20% in a stock then you have to look over the news and fundamentals and make a non-emotional and logical decision. Most companies that are down over 25% don’t come back right a way. You should always be looking at different stocks and sectors to see what is working right now and in the near future, so it may be a wise idea to take the loss and have a different stock make the loss back for you. In most cases it will work out for you better if this strategy is followed.
P.S. Want to learn more about the stock market? take a free two week trail with Jim Cramer from TheStreet.com

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