My brother, Michael, always says that selling a stock is ten times more difficult than buying one. And he's right, especially if we're talking about losers.
That's because implicit in any stock sale is the admission that you were wrong, and who likes to admit that?
But learning when you're wrong is key to making the right investments, and if you follow my simple rules, you'll be well on your way to doing just that.
So today's "K-Call" is both simple and hard; sell losers, and here's how:
- Rule #1: Check your emotions at the door.
It's easy to get emotional about a stock pick. Most require weeks of research, and that's a lot of time spent just to get it wrong. But if you can get over your wounded pride, you'll be able to make better decisions.
Just remember, pride is poisonous to wealth creation.
- Rule #2: Identify your time horizon.
No holding period can last forever, so mapping out the intended duration on the initial purchase makes it easier to sell that holding later.
- Rule #3: Look at your portfolio with fresh eyes.
Did the economic conditions under which you made your purchase change? Has the industry's outlook changed? Has management changed?
The point is, the very reasons you bought a stock in the first place may not exist. So ask yourself if you'd initiate that same position today under current conditions. If you wouldn't, then move on.
The past is prologue. The future is where money can be made.
If you follow these steps, selling losers will be ten times easier.
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"The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.
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Gary Kaminsky does not hold any equity positions.
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