Stock Market Video Selling Big Losers: How and Why
The Early Bird gets the Worm
Stock Market Video
Selling Big Losers: How and Why
The Early Bird Gets the Worm
In Case You Missed It
In this week's Stock Market Video, Mike Cintolo, Editor of
Cabot Market Letter
Cabot Top Ten Trader
talks about the slow, steady improvement in the indexes and
leading stocks, and draws an interesting comparison to 2006, when
growth stocks kicked into gear a full two or three months after
the indexes bottomed. It could be that something similar is
happening this year. Stocks mentioned include:
), Amazon.com (
), Equinix (
), Under Armour (
), Western Digital (
and more. Click below to watch the video!
Selling Big Losers: How and Why
Let's say that in spite of your New Year's resolutions, the good
advice you've received from advisors and your sincere best
intentions, you are sitting with a stock in your portfolio that
represents a huge loss. Or maybe more than one.
Maybe you went on vacation during earnings season and one of your
stocks reported badly and investors threw it off a cliff. Or
maybe the stock has been drifting downhill for months, but you
love the story and you've just been watching in disbelief,
knowing that it will go back up. Or maybe you're just angry that
the stock has tanked and you're just not going to capitulate.
(After all, if you don't sell it, it's not a loss, right?)
There are a few ways to rationalize holding on to a big loser,
but not many. A stock may be a core holding in your portfolio
that pays a good dividend. It may be a value play and you have
the fundamentals to support your long-term projections for its
ultimate success. Or, maybe you're postponing actually booking
the loss to use to offset a big capital gain for tax purposes
(the least likely scenario of all these days).
But chances are good that you're holding onto this loss out of
hope (misplaced), sadness (appropriate, but not a good guide to
investing) or love of the stock itself. And believe me, any
growth investor who's been around the block a few times has been
through all of those bad excuses, and more.
So my message today is that it's time to kick those broken stocks
to the curb and get on with your investing life. It's not easy,
but it will make you (and your portfolio) feel much better as
soon as you do.
Why sell? There are three big reasons. First, you will protect
yourself from further losses. (If you think the stock has gone as
low as it can go, you're probably wrong. A quick look at the
charts of Green Mountain Coffee Roasters (GMCR) and Netflix
(NFLX) over the past year will give you the idea in very graphic
Second, you will free up the remaining capital for use in owning
a healthier stock with better growth prospects.
Third, and maybe most important, by biting this bullet you will
help yourself to avoid repeating this mistake in the future.
Chunking your big losers into the trash will help you to learn
the lesson that hope, while can be part of a rationale for buying
a stock, is a terrible, terrible reason to hold onto one. And
having the gumption to jettison losses will reinforce your
resolve to use appropriate loss limits in the future.
As far as how to sell, my advice is just to hit the dang "SELL"
button! Yes, you can wait for a price uptick, but that often
gives rise to the temptation to hold on in hopes that the stock
will continue to recover. But big losers are often damaged, and
true recovery may not occur for quarter after quarter. And if
you're worried that the stock might just blast off to the upside
as soon as you sell it, ask yourself this question: Is it more
likely that your wounded bird of a stock will rally, or that a
fresh new stock in an uptrend will? If your brain-housing module
is in good working order, I think you'll make the right decision.
Here's this week's Contrary Opinion Button. Remember, you can
always view all of the buttons by
The early Bird Gets the Worm
This proverb dates back to the 17th century--perhaps farther--and
its value then is obvious. He who rose at dawn (or before) had
first crack at the opportunities of the day.
Today, with electricity enabling productive activity 24 hours of
the day, some argue that the proverb is less relevant. As
an early riser, I like it. (Editor's note: Even in an electric
age, some diligent investors find great opportunities before
others catch on. But there's also a danger in over-eagerness.
That's why one of my favorite cynical proverbs is "The early bird
gets the worm, but the second mouse gets the cheese."
In case you didn't get a chance to read all the issues of
Cabot Wealth Advisory
this week and want to catch up on any investing and stock tips
you might have missed, there are links below to each issue.
Cabot Wealth Advisory 8/13/12 - Six Things the
Olympics Taught Me
In this issue, Tim Lutts, editor of
Cabot Stock of the Month
, reviews the lessons that the Olympic games taught him and
explores the superiority of long-term stock market returns over
bond yields. Stock discussed:
Five Below (FIVE)
Cabot Wealth Advisory 8/16/12 - Ten Lessons I've
Learned from the Experts
In this issue, Chloe Lutts, who edits
Dick Davis Investment Digest
Dick Davis Dividend Digest
, reviews some of her favorite lessons gleaned from interviews
with various newsletter editors over the last six
Have a great weekend,
Cabot Wealth Advisory