Why would selling your biggest losing stocks be the best idea in this economy?
There are a couple of reasons to sell your losing stock. But before you decide to sell you need to check out a couple of things. What is the chance this stock will rebound? Many stocks took a hit and several nosedived when they should not have simply because people panicked. One Stock I purchased was a financial stock that fell with all the rest of the marked, yet this was a sound company with very little exposure to the sub prime mortgage market. A little research showed that they had a strong cash reserve and were continuing to make loans and pay a dividend. Like most stocks it was near the 52 week low when I bought my shares. In less than two months it is up 62%. It lost almost 1/2 its value in two weeks yer in less than two months has almost recovered all of the loss and will soon be approaching its 52 week high.
IF on the other hand this stock lost value and was in poor financial shape it would be wise to sell and avoid further loss.
Another reason to sell at a loss would be to use the loss to off set a gain made in another sale of stock. Usually you would look at your stocks and see which ones were performing poorly and showed no signs of recovering and sell them to get some money freed up to take advantage of strong stocks that are under valued.
A word of caution consult your tax advisor before making the sale to make sure you can use the loss in your situation. Also consult your broker for the rules of reinvesting that money if you took a tax loss.
In conclusion you sell stocks at a loss for several reasons:
1. To cut your losses and avoid further loss of wealth if the company shows no signs of recovering soon.
2. You sell a stock that is losing to free up money to purchase different stocks.
3. You might sell to take a loss and off set a gain.
Remember to check with your tax advisor and your broker to make sure you are following the rules and not get into trouble by doing it wrong.
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