Here is something that Jim Cramer on CNBC said last week: “I’m telling you to have some discipline. I expect this market to have a near-term bounce, and discipline means you should sell something into that rebound…” (CNBC) Honestly, this assumes that the market will resume its selloff, which it very well could. But what if it doesn’t?
That statement also assumes that you will know when markets will turn back around. Which you don’t. Nobody does for sure. You may very well end up buying back your shares at a higher price than you sold them for. Long-term investors should not buy and sell to time the market.
The only time you should sell your shares is when 1) You need the money, 2) Something has fundamentally changed about the company. And we try to avoid #1 at nearly all costs. Otherwise, the idea of timing the market is a fool’s errand as I said in last week’s blog post.
If you want a little info to back my stance, check out this Investopia Article (click). You could practice timing by reallocating more to cash if you think the market is high, or by reallocating away from as much cash if you think the market is low. At this time the market just sold off so the worst thing to do is to sell. But be ready to buy if you have cash.
Selling on a bounce… hmm.. if you sold at the end of the day last Wednesday, which was the day the market bounced, you are still looking at a total loss on your tech stocks of around 15% from the top. I really don’t think that’s acceptable. If you hold on you might lose more temporarily but you will ride the next turn up. Fools sell just because the market goes against them.
Again, if something financially has changed about the company, maybe it is a good time to sell. Otherwise, stomach the drop. With practice you will get better at it.
More Reading:
- Tech Chills Spill Into Asia, as Shares Sink Across Region – NBC Chicago
- Premarket stocks: When central bank stimulus isn’t enough – News AKMI
- How to Stomach the Volatility in the Stock Market – Money and Freedom
Do you have a relevant article you would like us to link to? Feel free to make a request at brian@satterleegroup.com.