Personal Finance Forum 2 Jack and Rose, acting on the recommendation of their neighbor, recently purchased their first stock, 500 shares of a small capitalization Internet company trading at $80 per share. The neighbor informed them that the stock was a “real money maker” because it recently had a two-for-one stock split and would probably split again soon. Even better, according to their neighbor, the company was predictable to earn $1 per share and pay a $0.25 dividend next year. Jack and Rose have so far been unimpressed with the stock’s performance—the stock had underperformed the S&P500 index this year.   Application: Jack and Rose have come to you for advice. What do you think?

VTPETERS2002

5 years ago

Maybe the company crossed an ethical line, or the CEO resigned unexpectedly. Or maybe a world-wide pandemic has created market volatility. Either way, that blue-chip stock you thought was part of your portfolio’s foundation is now falling and it’s up to you to figure out how to repair the damage. Now, more than ever, investors are faced with the decision to sell off their underperforming stocks or weather the storm and wait it out until COVID-19 passes.

So, what should you do?

Before deciding when to sell an underperforming stock – if that’s what you want to do –remember that impulse selling is often a big mistake. Many stocks have seen their share price fall in value because of a missed quarterly report, a departing CEO or another reason only to see it rebound to even greater heights. Today, many are now feeling the impact of COVID-19.

Of course, it’s not always easy for people to stay patient – and there are many examples of companies that have run into problems, only to go bankrupt. But, before selling an underperforming stock, do your due diligence to ensure that the reason you bought the company in the first place still makes sense.