I Will Teach You To Be Rich: No guilt, no excuses - just a 6-week programme that works

by Ramit Sethi

But let’s talk about this conceptually to understand when to sell an investment for poor performance. If you discovered that the share price of a stock you own is down by 35%, what would you do? “Ramit,” you might say frantically, “this stock sucks! I need to sell it before I lose all my money!” Not so fast. You have to look at the context before you decide what to do. For instance, if the example is a consumer goods stock, how is the rest of the consumer goods industry doing? By looking at the stock and the surrounding industry, you see that the entire industry is in decline. It’s not your particular investment. They’re all doing poorly. Now, this raises questions about the industry, but it also gives you a context to explain your stock’s plunging returns. And just because they’re plunging doesn’t mean that you should sell immediately. All industries experience declines at one time or another. Find out what’s happening with the industry. Is it still viable? Are there competitors replacing it? (For example, if you own shares in a company that’s producing CD players, chances are that business is not coming back.) If you think the industry or investment is simply going through a cyclical downturn, then hang on to the investment and continue regular purchases of shares. If, however, you think the industry won’t recover, you may want to sell the investment. Now, if your stock’s share price has plummeted, but the share prices of other companies in the industry are high, then co...