Knowing when to sell your stocks is always a challenge. Selling stocks in the midst of a global pandemic is even trickier. Here are a few simple rules.
As I wrote in this space a couple of weeks ago, you haven’t lost any money until you sell your stocks. I also believe that this downturn is temporary. It wasn’t caused by problems in the economy. Prior to the coronavirus outbreak, we were enjoying a bull market, low inflation, and an enviable unemployment rate. And while I can’t predict when we will get back on track, I do know that it will happen.
So, for most of us, that means we should hold tight to our stocks.
However, there may be a few reasons to sell stocks in your portfolio, and they are the reasons you would sell them in any market.
[text_ad]
When to Sell Stocks in a Global Pandemic
In this kind of market, with few endemic fundamental problems, the primary reason to sell a stock is this: If the fundamentals of the company have deteriorated to the point where you do not think it can recover after the coronavirus pandemic is over.
For most of your stocks, that is probably not going to be the issue. But if you are holding shares in companies in which the fundamentals of their business were teetering on the brink of insolvency before the coronavirus hit us, then face it: they are companies likely to fail and not be able to spring back once we start our recovery phase.
Some of these failing indicators would be:
- Were they losing money before the outbreak?
- Are they overloaded with debt?
- Were revenues shrinking before coronavirus?
- Are they in a sector that was suffering before the pandemic?
Now, if your stock doesn’t fall into any of the above categories, I would put it through these last three tests:
- Are all the reasons I originally bought this stock still in place?
- Is my price target still valid?
- Can I make more money by retaining the stock than by substituting another investment?
If the answer to any of those questions is no, it’s time to bail, and move on to investments with greater potential.
If you are still happy with the company and satisfied with its potential, then keep the stock. If not, sell it and look for greener pastures.
And since I always like to give you some investing guidance, as well as ideas, I took a look at the best- and worst-performing sectors and stocks since the beginning of the year.
Best- and Worst-Performing Stock Market Sectors
The best:
Sector Return
Consumer Staples -14.5%
Healthcare -15.9%
Technology -16.1%
The worst:
Sector Return
Energy -53.0%
Financial Services -35.9%
Industrials -30.3%
And here are some of the best- and worst-performing stocks through the first quarter of 2020:
The best:
Stock Return Sector
Regeneron Pharmaceuticals, Inc. (REGN) 33.0% Healthcare
Digital Realty Trust, Inc. (DLR) 14.7% REIT
The Clorox Company (CLX) 13.8% Consumer Staples
The worst:
Noble Energy, Inc. (NBL) -76.2% Energy
Marathon Oil Corporation (MRO) -77.0% Energy
Apache Corporation (APA) -84.3% Energy
I recommend that you take some time to review your portfolio. And then, be brave. Now that you know when to sell stocks in this extremely volatile environment, cut your losses on some of the stocks that you just don’t think will recover, and then just sit tight on the rest.
And above all, I wish you good health.
[author_ad]
