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Should You Sell All Your Stocks Before the Stock Market Falls Further?

Photo credit: Rafael Matsunaga. Licence: http://creativecommons.org/licenses/by/2.0/

The local stock market has been going through a rough patch for the last couple of months. As of 6 July, the Straits Times Index (SGX: ^STI) is down around 6% from the start of the year and close to 12% from the peak it hit in early-May. In times of uncertainty, how should an investor decide what to do? Should you sell all your stocks and buy back later or should you sit tight and ride out the volatility? Let me share some thoughts on when investors should consider selling.

One of the most compelling reasons to sell the stock would be if you received inaccurate information. This means that during your research process, you decided to buy this company from incorrect or incomplete information. If this is true, investors need to reevaluate the company once they come to know of this discrepancy and make a more informed decision. Your previous decision should in no way influence this decision.

The second reason that warrants selling is due changing facts or business environment. If a situation occurs where the initial thesis for the original purchase has been altered negatively over time, the stocks should be sold. This, for example, could be due to management deterioration, exhaustion of growth opportunities, weakening of finances or other changing factors.

Lastly, investors can justify selling a stock if a better opportunity is available. This is a unique case where an investor believes he has found a new company that offers superior returns compared to the company he is planning to sell. In such a situation, it might be foolish for the investor to let go of this opportunity. However, caution should be advised because we must ensure that we are well-informed about the new purchase.

In the current downturn, before investors decide to sell, they should evaluate their investments with an eagle eye. This is to ensure that their reasons for selling are sound and it is not a spur-of-the-moment decision due to the markets crashing.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.