Have you ever felt emotional whiplash after buying or selling a stock? Financial advisor and podcast host Suze Orman shared one piece of advice on the only time you should sell your stocks at a loss: When the company itself and the people running the company are no longer in favor.
Whether it’s shrinking earnings, story changes, debt pileups or competition wiping a company out, it’s not a stock you want to hold onto, according to Orman.
“It’s time to sell not because the price of the stock went up,” Orman says in her podcast episode, “When You Should Sell A Stock.”
“It’s time to sell when the company itself, the people who are running the company, it’s no longer in favor. It’s been taken off an exchange because nobody cares about it anymore.”
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Understand Why You Buy a Stock
Before diving into buying stocks, investors should understand what different types there are. Financial services firms like Fidelity suggest knowing the business behind a stock before you buy — it all starts with research and a game plan.
You don’t want to panic during a market dip and sell, shared Orman. Just because everyone else is doing it doesn’t make it a smart decision.
In addition, she says not to sell stocks that have a strong future, even if the price dips for a bit. If you did the research, and the company is sound, so is your investment.
“You want to be in those stocks when they go from 158 back to 190, maybe to 200, maybe to 300, and so on and so forth,” she explained.
Orman shared two very wrong reasons to have purchased stocks, and why you should now consider selling.
You Bought it on Emotion
“If you cannot explain in one or two sentences what the company does and why you believe in its future, I am telling you then that is a mistake,” says Orman.
She also says to consider selling if your stock has caused you persistent anxiety. And she’s not the only expert to say so. Investment company, Charles Schwab advises that if the company isn’t living up to the standards you bought it for, it’s time for it to be removed from your portfolio.
You’re Relying on Hope
Are the fundamentals of a business gone because of management issues or other changes?
“If the only reason that you are hoping on is because you hope it comes back, how many times have I said that hope is not a financial plan,” said Orman. “And hope is definitely not investing. Hope, believe it or not, is gambling. You hope that the right cards are dealt to you or the dice are going to come up with whatever they’re supposed to come up with. Hope is not investing.”
If you are still on the fence as to whether to sell, it can be a good idea to touch base with a financial advisor.
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This article originally appeared on GOBankingRates.com: This Is the Only Time You Should Sell Your Stocks at a Loss, According to Suze Orman
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