When to Sell Stocks at a Loss [And Turn It Into a Gain]

We’ve all been there. You follow a stock lower, losing five-, ten-percent
and more but hold out hope for the rebound. I’m going to show you how to make one of
the most difficult decisions in stock investing, how to know when it’s time to cut your losses. How to know when to sell stocks at a loss. Beat debt. Make money. Make your money work for you. Creating the financial future you deserve. Let’s Talk Money! I’ll not only give you three scenarios for
when to sell stocks but the strategies you can use to turn that loss into a gain. We’re talking when to sell stocks at a loss
today on Let’s Talk Money! Hey Bowtie Nation, Joseph Hogue with the Let’s
Talk Money channel. A special shout-out to all you in the nation,
thank you for spending a part of your day here. If you’re not part of the community yet,
just click that little red subscribe button. It’s free and you’ll never miss an episode. This could be one of the most important videos
you’ll watch as an investor. That’s going to sound like an exaggeration
but I guarantee you, after watching this video, you’ll have the strategies you need to save
yourself thousands in losses and get out of a stock before it’s too late. So I want to share a story with you and anyone
investing long enough has seen this first-hand. This was originally a blog post from an investor
and mistakes that cost him $30,000 in just a few months. Robert is from Kentucky and if you know the
area, you know they love their coal up there in Appalachian country. So Robert was investing in coal stocks and
doing great, booking a 240% return in a few years to 2011 on Alpha Natural Resources. That’s when the pain started. Coal prices plunged as competition from natural
gas heated up. The coal companies had all put on mountains
of debt in the good times and it was absolutely destroying their stock prices into 2014. Robert invested just over $10,000 in Peabody
Energy, ticker BTU, and watched as the shares dropped like a rock first from $16 to $11
a share, then to seven a share and lower. But Robert loved his coal and was sure it
would rebound. Each time the shares took a big drop lower,
he dollar-cost averaged down, buying more shares so his average price would be lower. This is a huge mistake a lot of investors
fall into. Chasing that stock lower, thinking with a
lower average price then you only need the shares to rebound a little to recoup your
losses. Pretty soon, Robert was sitting on nearly
$30,000 in losses. Peabody shares dropped to under $2 a share
and he didn’t even care about making money anymore. He just wanted to get even, was praying to
just get even. When the company eventually filed bankruptcy,
Robert saw years of savings wiped out. This is the #1 trap for investors, especially
buy-and-hold investors that think of their time horizon as decades and can wait for a
rebound. People hate to sell at a loss. Even if a stock has dropped, it doesn’t
feel real because you still own the shares. Investors think if they hold on, eventually
that investment’s going to rebound and they can get their money back out. But just like Robert, the market doesn’t
play by these rules. Even if you hold onto a losing stock long
enough, you may never get your money back and you could be missing out on potential
returns in other investments. Just ask investors in Research in Motion,
now called BlackBerry, or Citigroup investors that are up 360% since 2009 but still down
87% from before the 2008 crash. So I’m going to give you three scenarios,
three reasons to sell a stock at a loss. It’s not going to be an easy decision but
you’ll know when to make it. You’ll be able to cut your losses in a stock,
reinvest that money into a better name and start earning those positive returns again. Not only will we cover those three reasons
to sell a stock but I’m also going to show you why I hate stop-loss orders. These are a favorite strategy of investors,
a strategy you might think will save you from big losses but I’m going to show you why
I call these guaranteed loss orders. I’m using this video as a monthly update
to our 2019 dividend challenge portfolio. I’ll be highlighting three stocks in our
portfolio, three stocks that haven’t lived up to expectations, and using those three
scenarios to decide whether to sell these investments. I’m putting this video into our 2019 Stock
Market Challenge playlist so if you haven’t seen the other updates, check those out. Along with some of the biggest investing channels
here on YouTube, I created a $1,000 portfolio in January and will be tracking it all year. To track my portfolio of dividend stocks,
I’m investing $1000 on M1 Finance, a no-fee platform that lets you pick your stocks and
automatically invests any new deposits across your group. With changes to commission-free trading on
most websites, a lot of you have asked if I still like M1 Finance even with lots of
choices for free investing. I still like it on that portfolio perspective
and the automated reinvesting across the entire portfolio. Basically, you can set your portfolio up to
automatically reinvest any dividends or deposits across all the investments and in the percentages
you set up. It’s great for that long-term, buy-and-hold
investment strategy. I’ll leave a link to the playlist of videos
below in the description. I’ll also leave a list of the current portfolio
of stocks in the description below as well. Here we’ve got the portfolio as of mid-week
with a 20% return so far on the year including reinvested dividends. That’s 4.6% better than the S&P 500 and
even beating the Vanguard Dividend Appreciation Fund and its 18.5% return on the year. We’ll scroll through the holdings real quick
but I want to get to those three signals to sell a stock at a loss and the examples I’ll
use from the portfolio. Of the 13 holdings in the portfolio, six are
beating the market with some real standouts like this 118% return on shares of Hanesbrands,
ticker HBI, and a 72% return on General Mills, ticker GIS. Two of these funds here, this Vanguard REIT
ETF, ticker VNQ, and the Vanguard Long-Term Bond ETF, ticker BLV. These have been critical in protecting the
portfolio from some of those big down days in the market and a lot of the reason we’re
beating the market right now. Check out the previous videos in the series
where I talk about why I added each of these stocks and what’s really driving these returns
but now I want to get to the losers. Those stock picks that haven’t worked out
and how I decide whether to sell or hold on. Our first scenario of when to sell a stock
at a loss, or at least when to consider selling, is when company-specific mistakes have hit
the shares rather than industry-wide weakness. Ford is a perfect example here. The 7% dividend yield is so persuasive and
shares trade for just 6.5-times on a PE basis. Despite the bargain-basement price, Ford has
been the worst performing stock in our portfolio with an 11.6% loss since adding it a few months
ago. But Ford’s losses haven’t been because
of management missteps or those company-specific problems. Comparing shares against the Global Auto Index
Fund, ticker CARZ, a fund of manufacturers and parts suppliers to the industry, you see
that shares of Ford have outperformed the industry over the last year. Going back even further, Ford’s pain has
been that industry weakness since 2015. Ford management is making the tough decisions
to guide the company through the environment and I still believe it can be a good investment
when that overall industry trend turns positive. Now if Ford’s losses were completely of
it’s own making. If the industry were doing just fine yet shares
of the company were falling on management mistakes or internal problems, that’s when
you want to consider selling a stock at a loss and investing in something else. A big part of successful investing is about
finding the best-of-breed companies in each sector or industry. We’re talking the leaders in each product
category, the companies with great management and a competitive advantage. If a company in your portfolio isn’t living
up to that standard, it’s time to cut the investment. Another situation where you might want to
sell a stock even at a loss is when another investment has a higher and more certain return. Now understand you can’t just be chasing
stocks, buying and selling the newest hot tip you hear on CNBC. Understanding this rule though is very important. Every investor thinks their fallen stock is
eventually going to get back to even. It’s part of that confidence you build in
your stock picks where you are so sure of something, you might even ignore the other
evidence to the contrary. There are two parts to understanding when
you’ve just been plain wrong about a stock’s fair value and whether to put that money in
a better investment. First is you have to analyze every stock on
all current information. This is a big one for losing stocks. It doesn’t matter how much you’ve lost
or where the price was a week ago. You have to look at it as a new investment. So go back through your analysis, start from
scratch and look at the company as if you hadn’t invested yet. Would you still buy it? What is the fair value based on all the current
information and here you have to be impartial. Seek out the bull and bear case and take everything
into consideration. Now even if you look at the shares and they
seem like a good investment, the next question is to ask how long it’s going to take for
the stock to get back to that fair value? How many years is that and what’s it look
like as an annual return. Once you know all this, you can look back
in the market to see if there’s a similar stock, maybe a company in the same industry,
with a higher and more certain return. A good example here is the Alerian MLP fund,
ticker AMLP, we’ve had in the portfolio since January. This is a fund of 32 companies in the energy
master limited partnership space, companies that own pipelines and storage facilities. It’s got a massive 8.4% dividend yield but
has done nothing all year with a 3% gain so far since January. Now that combined 11% return isn’t bad but
this one definitely hasn’t lived up to expectations. So even though I like that yield and the mid-stream
energy space, I have to question how long it’s going to be before fundamentals turn
around. Here it’s really a problem with the price
of oil and those global economic worries. Even on a massive outage at a Saudi oil facility
last month that took 5% of global production off the market overnight, oil prices are hovering
around their lows on the year. Fears of a slowdown in global growth have
demand estimates getting cut and a recession in the U.S. could seriously hit oil prices
and this investment. Last scenario here before we get to that reason
I hate stop-loss orders, why you absolutely need to avoid these. And the next scenario you need to watch for
is a major event against one of your stocks. Here we’re talking fundamental changes in
the business, scandals, lawsuits and just management issues in general. These include the five reasons to sell a stock
I talked about in a prior video, reasons to sell whether you’ve got a gain or a loss
on the shares. I’ll link to that in the video description
below so check that one out as well. It goes back to the idea that you have to
treat every investment as new when these kinds of big drops happen in the share price. When a scandal hits the company or management
decides to make a major acquisition that moves the business into a different path, you have
to reevaluate the shares and make sure that buy thesis still holds. Olin has been a big disappointment here, even
more so considering this stock was up 35% from where we bought it into late February
but has been nothing but bad news since. It’s now sitting at an 8% loss after management
missed earnings expectations two quarters in a row. The company lowered guidance for earnings
in July on a weak pricing environment and issues at a storage facility but there hasn’t
been one single catalyst for the drop. It’s just been a slow bleed of investors
bailing on the stock. Third quarter earnings are expected November
1st so I’m waiting to get a sense of how management plans to get back on track. If they miss earnings for a third quarter
in a row, it maybe time to cut this one lose. Now I want to get to one of the worst investment
strategies you can use, the stop-loss order, and consider this something like a public
service announcement these things are so bad. First though, I want to get your feedback. We’ve seen my three reasons to sell a stock
but what are yours? What reasons have you used to cut ties with
an investment and how do you make that decision? So scroll down and tell us in the comments
below, what other reasons do you use to sell stocks? Now on to that public service announcement
and why I absolutely hate stop-loss orders. A stop-loss order is a way to sell your stocks
based on the price. You’re telling your investing platform that
you want to hold the shares unless the price drops to a certain point. If that happens, you want the platform to
automatically sell the shares. Not that I would use it but here’s an example
of a stop-loss order on shares I own in ElDorado Gold. I’ve put in a stop price of $7.50 a share
which means if the shares fall to that point, the platform will automatically sell my 10,000
shares. Now on the surface, stop-loss orders sound
great. It’s an automated order so you don’t have
to be watching the price every day. If bad news hits the stock and the price starts
falling, your shares are automatically sold at the earliest moment. The idea is that you stop any further losses
in the investment. A lot of investors will put in stop-loss orders
to sell if a stock falls below their buy price or a certain percentage below the current
price. The problem is, and this is why I call this
the guaranteed-loss order, is that you will never get that stop-loss price. You might put in a price at which you want
to sell the shares but the market just doesn’t work that way. When the market panics on a stock, when bad
news hits and the shares tumble, that drop in stock price is immediate. Sure the price might drift lower through the
day but that initial knee-jerk reaction that sends it down ten or fifteen-percent, that’s
all at once. What happens here isn’t that orders for
the stock are traded at prices all the way down. Hell No! You’ve got the price before the news. The news hits and the market shifts what it’s
paying for the shares down that 15% immediately. So going back to our ElDorado Gold example
with shares trading at $7.77 right now. If management came out and said they were
abandoning the company’s Greek assets, the shares would plunge 20% or more immediately,
let’s say to $6.22 a share. Now I might have that stop-loss order in for
$7.50 a share but the fact is, when those shares dropped, there was nobody to take the
other side of that order. Nobody wanted the shares at $7.50 a share
because this news took it down to six and change instantly. But that stop-loss order is going to trigger
because the shares fell through my stop price. Instead of getting my $7.50 stop price though,
I’m going to get the first price available which is that $6.22 a share where the buyers
start offering after the news. Besides the fact that you’re never going
to get that stop price you set in a stop-loss order, another problem with these is that
initial reaction to the shares is usually wrong. Have you ever seen a stock take a nosedive
on some bad news, fall like 20% at the open, and then drift a little higher through the
day. It still closes lower but not nearly as low
as that initial drop. Well with a stop-loss order, you get triggered
at that market open at that price on the knee-jerk reaction to the news. Your shares sell at that initial drop in price
and you miss out on the drift higher over the rest of the days. Now I know it sucks to see one of your stocks
drop hard on some news and it would be great to think there’s some magic strategy that
will save you from losing money. The market just doesn’t work that way and
stop-loss orders are guaranteed losers. Click on the video to the right to see how
I pick dividend stocks safe from a market crash. Don’t forget to look in the video description
below for that first video on how we set up our 2019 dividend challenge portfolio and
how to get started with dividend stocks and join the Let’s Talk Money community by tapping
the subscribe button.

29 Replies to “When to Sell Stocks at a Loss [And Turn It Into a Gain]”

  1. Great tips Joseph! 👍 I really try hard to sell for a lose. Sometimes when I buy at a high price, I continue to buy to lower my average cost.

  2. You described me in the beginning with my marijuana investment.

    I don’t want to sell because we are in the beginning stages of a fast growing industry. I think even with debt – investors will supports these cannabis companies until profitability

  3. 5 Dividend Stocks You Won't Have to Worry about Selling! 💰 These dividend-payers will never let you down! https://youtu.be/huy7Ui5xg_s

  4. I kno the feeling, jus went thru this, but wit good advice I got out before I lost completely, lost half but better then losing all

  5. I see your point. I use to average them down if I really believe in the stock.

    In this market condition, I’m setting up a stop loss of 10% and sell them

  6. Great videos again Joseph , I personally do NOT use stop loss orders , mostly only buy and hold dividend stocks from my experience my biggest losses have been with Buying options when i first started . Now in my opinion and what has worked for me personally in safer trades are Selling PUTS and Covered calls . Covered calls also give downside protection too but like you said Joseph , you just have to know when to get out.

  7. When to get out of stock at a loss? The conventional wisdom seems to be if soon after buying a stock it drops by 8% you should sell. If you're like Luke Skywalker in a Deathstar trash compactor and you've got a bad feeling about this you may want to get out sooner. Of course, that advice is mainly for short term growth and value investors. Longer term growth and income investments, I think you're on the right track. Re-analyze the stock and then see is there is a better investment for your money.
    I recently had to do this with a REIT I was invested in: EARN. The dividend and price were dropping, so, I took a look at the earnings for the past year and got out despite that when I bought it I thought it was a "buy til you die" stock.

  8. Yup, I bought stock in a wonderful company in August all good right? Nope, the company has a massive project in Argentina which had an unexpected result in their presidential elections … Market got scared that Argentina wont be able to pay off its debts and on top of that they implemented capital controls. So yupiiii, did not see that one coming.

    Did not sell. The company is still sound and the project is due to kickstart in the 1st quarter of next year so the theory is I should see a return by the 2nd quarter of 2020. If I am wrong I loose some money but not all … I will get back up easily. One way I manage risk is I "never bet the ranch".

    Hopefully the only thing Ill regret at this stock is that I didnt buy more when it was so low … We shall see.
    Times Id sell a stock is:
    Managment is dilluting stock
    They are to agressive in buybacks or dividends (LVS)
    They take on too much debt
    They are frauds
    The fed starts tightening interest rates
    Gold drops below 1300
    Found a better stock to buy

  9. Man, it is HARD to sell a stock at a loss, especially if you have researched the heck out of it and really believe in it… Thanks for your insights, Joseph. Super good video, I hope everyone watches it fully.

  10. I bought SLP at a little over $16/share. Enjoyed the ride to around $38/ share. Sold it after 2 straight days of losses totaling around $4. The dividend was weak anyway. This was last month. Bought AT&T with the cash. Hoping T will thrill me, so far it's been lackluster. Was it a good move?

  11. I found that the buy, hold, and homework strategy is helpful. Also to take 20% profits sometime and reinvest the money in positions for greater returns

  12. Great channel buddy, thank you for your service and thanks for the sound advice. I just recently started taking my finances seriously, so channels like yours are very helpful. I find it fasinating that any of your videos have thumbs down considering the fact that this is free advice and your just trying to help people. Keep up the great work buddy!

  13. Yes, Bowtie Nation! Snappy bow tie today. Glad you are covering this topic. This is something I have been wondering about as I have stocks in some companies that were bought by a Financial Advisor (who I don’t use any more) and were bought at too high a price. I wasn’t really paying attention the way I should have been. Some of them aren’t doing well…down 20% to 40% and they aren’t really companies I would have invested in by my choice. Really need to form a strategy on how to handle them. Just have been letting them ride. A few pay ok dividends, but concerned their price may not recover for a long time though, if at all — SU, MFC, STT.

  14. You never got back to me on nokia so I bought 2023 shares for 4.94, I think I had to jump into it now. (Your speech inspired me)…

  15. The stocks I have that have any real loss that I'm uneasy about are Cannabis stocks. They've been plummeting for a while. I'm hoping it will rebound in the long run. What do you guys think?

  16. Great video!! I was wondering what your professional opinion is on cannabis stock investing? Thanks for the great information in all your videos!

  17. Your 3rd reason is exactly why I bailed on ACB. I sold directly after they missed their own guidance last month and the stock tumbled 9%. My gut told me that between this and various negative factors in the Canadian MJ market the stock would bleed and sure enough it has continued to do so. I ended up investing into IIRP and even though they had a large 10% drop yesterday (due to Hexo lowering Q4 sales expectations and nervous investors about the SAFE act possibly passing), I think that management has done extremely well with growing and have set the company up to be extremely successful if MJ is decriminalized federally in the US. I also feel as if the market for this particular stock is overreacting, thinking that if the SAFE act is passed it will take away from IIPR’s sweet spot in the REIT sector of cannabis. Therefore I am going to stay long with this one until management, the government or banks show me otherwise.

  18. How do you figure out the "Support Line" where if stock price drops below that then we would have to sell it off? Do you have any video on how to calc. support line to share the link?

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