Don’t Keep A Loser Investment
As part of our theme on defining the right path for investors, we’d like to point out another mistake many investors make, which is holding onto their loser stocks. Holding onto loser stocks can have a big negative impact on your investment portfolio over the long term.
I guess we should start with why this happens. Psychologically, investors pride themselves on their decisions to pick the right stocks. If their stock goes up and they sell, they feel happy and they feel the conviction that they were right. If the stock goes down many investors don’t want to sell because they don’t want to believe they were wrong. For this reason, many investors refuse to sell certain stocks.
With that said, investors shouldn’t sell just any stock that goes down. Investors should objectively monitor stocks that go down to see if they are going down for a reason. Usually, stocks fall for a reason, especially if other stocks are going up and your stock is going down. Find out what is driving the stock down. Often times certain business sectors fall behind because of fundamental changes to an industry or changes in the competitive landscape. Also, company specific events or changes can cause a company to become a loser. For example, look at current cell phone makers Apple and Research in Motion, Apple has been gaining market share every quarter, while Research in Motion, although highly profitable, is losing market share rapidly. In this case, Research in Motion is the loser.
Find out if you have a loser stock and if you do, don’t hesitate to sell it. The money from selling your loser can be invested in something with better long term potential.
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