Income investing

Dividend Guy: 5 Rules to Sell a Loser

Posted on by Andrew Packer

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.

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    • 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    Second, if your original thesis for investing in a company is no longer valid, it may be time to sell.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.

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    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.

     

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