This is a dangerous time for investors, but it’s only partly because of what the bear market is doing to your portfolio. In my experience, these are the times when investors tend to stray far outside the bounds of any normal, prudent system; they do exactly the wrong thing at exactly the wrong time. And that’s what really kills them.
Why does this happen? Because when movements in the markets become extreme (on the upside or downside), emotions ratchet up. And when emotions ratchet up, investors want to do something … almost anything. Instead of patiently waiting and calmly analyzing the situation, too many investors fall prey to the lure of a volatile stock market. And they start doing things that cost them oodles of money.
Today I’m going to start addressing some of the questions I’ve received in recent days and weeks–another Q&A of sorts that will touch on some of the mistakes I’m seeing out there. And I’ll also touch on the market itself, with some views of the current environment, as well as how you should go about riding the next bull. I hope you find it interesting … and profitable. Please send us any more questions you have and keep checking back to read more Q&As in the coming days.
Question: I still own a bunch of stocks and mutual funds right now. Is it too late to sell? Or should I dump them?
Answer: This is the most popular question I’m getting these days, so if you’re in a similar boat, don’t feel ashamed–you’re certainly not alone.
Here’s what to do: First, if you own a ton of stocks that are broken and are showing you big losses, you should start selling something. It doesn’t have to be a lot, but trust me, taking some action–even if it means selling one-quarter of your holdings, or just dumping a couple of stocks outright–will make you feel better. You won’t just be sitting there and hoping the market will go up. You’ll be taking matters into your own hands.
With the rest of your holdings, try to sell pieces during rallies. Don’t be greedy; don’t try to get all your profits back. Just unload another chunk of stock if the market rallies for a couple of days, or if your stock pops higher. Over a period of a few weeks, you’ll gradually get out of your broken stocks and, eventually, when our indicators give the green light, you’ll be able to move into the leaders of the next bull move.
As for mutual funds, I have less concern about them, assuming they’re broad-based (i.e., not sector funds) and have a decent track record. Funds will come back when the market does, but many individual stocks will not.