Before you sell, ask whether a rising or falling stock price actually represents a change in the company’s business prospects I typically write Don’t Short Yourself every week with readers in mind who have just begun their financial journeys. So when I received an email from a 76-year-old retired professor and university band director over the summer, I was initially hesitant to respond to his query: “After 47 years of being a school band director … I began investing small amounts in stocks that I considered to be financial bulwarks, with steady and increasing dividends that were reinvested. The conundrum is, what is a reasonable answer and strategy to the question of when to sell and put the proceeds in the hands of my financial adviser?” he wrote.
His portfolio has grown to about $250,000, he said, with the largest holdings being more than 1,000 shares of Bank of America and 500 shares of Citi. I can’t speak to his specific holdings, and offering personalized investment advice wouldn’t be helpful to readers anyway, since everyone’s portfolio looks different. But “When do I sell?” is a question almost every investor wrestles with — and, with a tech-sector selloff spooking markets this month, it’s a crucial time to distinguish between making an informed decision to sell and panic selling.
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Panic selling is when an investor sells stocks based on fear or short-term swings rather than a clear analysis of the business behind the stock. Heather Knight, a vice president and national brokerage coach at Fidelity Investments, said the goal isn’t to eliminate emotion — we’re only human, after all — but rather to not let emotion push you into making a bad decision. Discipline is a choice,” Knight said.
To keep panic out of your portfolio, run your investments through this simple three-question test before making a move: 1. Has the business actually changed, or just the stock price?💲 When bad news hits or a sector experiences wild swings, markets can see knee-jerk reactions. But just because other investors are selling doesn’t mean you need to make an urgent decision.
Instead, ask yourself if the news hurts the company’s ability to make money over the long run. (If you own shares of artificial-intelligence companies, MarketWatch columnist Jurica Dujmovic has laid out some questions you should be asking.) “Volatility may create urgency in price without necessarily creating urgency in the decision,” says Alex Coffey, a senior trading strategist at Charles Schwab. One is its price-to-earnings, or P/E, ratio, which gauges how much investors are willing to spend per dollar of the company’s expected earnings. Other commonly used ratios are price to sales, which compares a stock’s price to the company’s revenues, and price to book, which compares a stock’s price to the value of the company’s equity.
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