Basic Investment Strategies, Part Five: Winners and Losers
We’ve talked a little bit in the past about avoiding panic and not succumbing to the urge to totally change your investment strategy due to a forecasted bottoming out in a typically sound industry or other similarly baseless projections. However, this of course does not mean that you should stick in there and weather every storm that comes along. Of course there will be a time when you actually should sell some of your interests and move on to greener pastures.
Adjusting or abandoning your strategy
The real trick is knowing the difference between adjusting your strategy and abandoning it altogether. Say for instance that much of your portfolio is occupied by investments in sound technological industries, like telecommunications or other technologies that have been around a long time and have become an integral part of human life. Huge surges and catastrophic losses are effects that tend to plague the life of new industries. The longer a stock has been around, the more it tends to equalize. Over time, the chances of a massive gain or loss will tend to stabilize and an investment can be considered to be lower-risk. Therefore, don’t panic in the case of these investments, even if they look shaky. You are very unlikely to “lose the farm” due to a single stock bottoming out, especially if the stock is in an area with a long history.
Selling stocks in your portfolio
However, like we mentioned, there will of course be times that you should adjust your strategy. Selling one or two of the particular stocks in your portfolio is a far cry from selling everything and starting over and should be considered a normal part of trading. The general rule of thumb to be followed is to look at each stock individually. If you have net losses in any stock, ask yourself whether or not you would buy shares in it today, as a new investment. If the answer is no, go ahead and sell it off. Chances are that waiting to break even on a stock like that will just frustrate, and in the meantime, you could be putting that money into a stock that will perform better.
Making a calculated move to greener pastures is what a smart investor does. This is adjusting your strategy, and is the technique to shoot for.
See you next week for part 6 of Basic Investment Strategies.
Sean Rasmussen
The Bullhunters Guide
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