When to Sell Stocks: Why Sometimes, Taking a Loss is GOOD

No investor has a perfect record, and therefore we all are eventually faced
with the prospect of selling a stock for a loss. Its human nature to be pained
by this process but its important to remember that selling a stock in the red
can sometimes be the best possible thing for your portfolio. When to sell a
stock is never obvious. But a good sale price is just as important as a good buy
price and sometimes, the right time to sell for a particular investment will
come even if the investment has lost you money. Recently a lot of questions
about big moving stocks like Sears (NASDAQ: SHLD ), Barnes & Noble (NYSE: BKS )
and Bank of America (NYSE: BAC ) have been popping into my InvestorPlace inbox.
BofA is rebounding, so some folks who bought at $10 are wondering if the stock
can regain that mark thanks to its recent run. Other folks are stuck with a bad
stock like Sears or B&N and wondering if they can hope for a change of fortune
to sell at a better price. I was struck by the fact that most folks are weighing
the merits of the stock based not on the news or the charts, but simply by the
fact that they own it. That fact seems to trump all else. But heres a good rule
of thumb if any of these trades are on your mind: If you didnt already own the
stock would you buy it right now at the current price? If not, sell. A practical
example: Let's say you foolishly bought 1,000 shares of Sears at $60 for $60k
in total. Now Sears is at $30 so you have 1,000 shares worth $30k. What if you
take that cash and invest it in, say, Apple (NASDAQ: AAPL ) – which doubles in
stock price over the next 12 months. You obviously have your $60k back. Which
one do you think is more likely – that Sears will hit $60 a share and make you
whole, or that you can recoup your lost cash faster in a different investment?
More importantly, by moving your money around you can seek out opportunities
that not just get you back to square faster but actually build you profits.
Time is money. And the more time you waste in a bad stock, the less time you
have to make money. Even a losing investment slowly drifts higher, the only
thing you have accomplished is feeling better about yourself. Want to feel
better about your portfolio? Move your money into a winner instead of limping
across the finish line on your current nag. Got a question for the InvestorPlace
staff? Please send an email to editor@investorplace.com. Jeff Reeves is the
editor of InvestorPlace.com. Write him at editor@investorplace.com , follow him
on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook .
Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.