Dividend Guy: 5 Rules to Sell a Loser

Not every investment is a winner. Even amid a massive bull market this year, many companies have failed to break higher. And investors are at an optimal time to sell a losing position. That’s because losses can be used to offset gains for tax purposes.

In the meantime, investors should bear in mind several reasons why it may make sense to sell a losing position. While there are always plenty of reasons to buy a stock, figuring out when to sell can be more difficult.

For instance, if a company’s fundamentals have changed for the worse, it may be time to sell. That could mean a company going from growing earnings to contracting earnings. Or the collapse of profit margins as a hot product is sold to nearly everyone who wants one.

Second, if your original thesis for investing in a company is no longer valid, it may be time to sell. Hoping for a turnaround isn’t an investment strategy. Remember, a company’s financial and operational health can change.

Third, for income investors, a dividend cut is a clear sign to sell. A stock will often fall in anticipation of a dividend cut. The follow-through indicates that a company starved for cash. And that it will take time to get back to a point where they can increase payouts again.

To hear the full list of reasons to sell a losing position, click here.