Tips on “The Art of Selling a Losing Position”

You may recall my interest in writing about market volatility. I have focused mainly on the opportunities that arise in a downturn to buy shares in large companies. The most recent massive market correction took place in March 2020. This was when the Covid lockdown brought a terrible decline in some high-quality corporate stocks. This summer, so far, the market has teased us with select opportunities here and there. We have agreed that we are in a “bear market”. This brings me to a very intriguing dilemma. A dear friend (whose opinion I greatly value on all things investment-related) recently brought this to light. We all seem to have some degree of discipline (or strategy) in determining when to buy, but we really struggle with when to sell! I have this challenge myself. Many professional money managers (mutual funds, etc) publish a “discipline of selling”. As a Certified Financial Planner – and former “client hand holder”, I recall spending considerable time persuading clients not to sell – to avoid lock in losses. My sharpest memories in this regard are of the Crash of 1987, the 2000-2002 period (the Bush-Gore Florida narrative, then 9/11, then the collapse of Enron, Worldcom, etc). Three years that just dragged by mercilessly. Later, of course, we lived through the Great Recession of 2008/2009, which shaped many of our fear profiles regarding serious nest egg investing. During the 2020 Covid lockdown, the market was down and bounced back quite quickly. Before we could adapt to isolation and wearing masks. You probably remember all of this. But when should you sell?

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