In the midst of a stock sell-off, it’s easy to be caught in a position and not know what to do, and many investors choose to take drastic action and “get out now.” There’s a lot going on against the market; unemployment claims showing a reversal back to a negative trend, major trends are slowing down, Europe is still in trouble, the price of oil is spiking, QE-2 is on the verge of ending and taxes look like they’re going up.
So, how can you resist selling everything? Cramer has your crisis playbook so that your portfolio can weather the storm.
First, Cramer says, you have to sell something, because no matter your holdings some stocks are just going to be better (or worse) than others. Have you taken big profits in a certain stock, or have the fundamentals changed? This may be an indication that this name is a sell opportunity. Perhaps you think a stock is going lower in the short term? Sell some of it, you could even buy some back in the short term. But, Cramer warns, don’t sell it all.
Instead, on a down day, look at it as an opportunity to scoop up stocks that are selling off even if they don’t deserve to, Cramer suggests, saying that this is an especially good time to add stocks that you really like.
A good rule of thumb, he says, is to evaluate your stocks on a weekly basis, giving them ratings of one to four, one’s being the best and fours being the worst. This way, you can go to your top stocks in times of panic, while the fours can be considered expendables. Your stocks identified as “three” can be sacrificed if you need to raise cash for your top stocks, and although you’d like them to get back to even, since something else you’re familiar with is likely to draw higher profits in the same amount of time. Cramer knows from experience that if you’ve done your homework, this sort of strategy could make your year, while you may always regret selling your whole portfolio, something that Cramer also knows all too well.
Remember that not all your stocks will bottom at the same time, Cramer warns, but in an S&P 500 futures-led sell-off, it’s a good opportunity to pick at - not load up on - your favorite stocks after the sell-off ends. If you’ve ranked your stocks correctly, a sell-off is a good opportunity to buy your favorite stocks at a discount.
But is it ever a good idea to sell all of your holdings? No, says Cramer, who points out that there are a number of factors that could shift stocks back into positive territory. Cramer does, however, give you the green light to sell some stock, because a turnaround may not come quickly, but he also doesn’t see the market completely falling apart.
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