WHEN a stock goes into a sharp decline we're all prone to freezing like a deer caught in oncoming headlights. Even if the stock does bounce back it's likely to take a while, during which it will be tying up money that could have been put to better use. The best way to avoid the situation is to have a predetermined selling strategy .
Unfortunately, there are no simple rules for doing this.
Knowing when to sell rarely comes down to something as easy as a change in price. Besides, what works for one person might not work for another. What might help though is to ask yourself three basic questions: why you bought the stock; what's changed since then; and the extent to which the change affects your original decision.
If nothing else, this should tell you something about your investing style. If you bought a stock because your uncle Bill said it would take off, you'll be hard-pressed to come up with the answers but if you've put some thought into your decision, the answers should help. The first question will be an easy one. Did you buy a company because it had a solid balance sheet? New technology?
Whatever the reason, it leads to the second question: are the reasons for buying still valid? Is the balance sheet still rock solid? Is the technology still relevant? Don't limit your research. Look for any event that could diminish the investment. If you see the same qualities as before, keep it .
Otherwise, proceed to the third question. If the changes are such that you wouldn't want to buy the stock again - at any price - it's a no-brainer. The more likely scenario though is that the changes simply call for a reassessment of the price at which you should be selling. An important thing is to know what it is before you get there. Another important thing is not to become emotionally attached to a company, otherwise making the right sell decision becomes almost impossible.
BusinessDay - Street Dogs -
http://www.businessday.co.za/articles/markets.aspx?ID=BD4A724346