Best to sell strongest or weakest stocks now?
Hi, might not be the best forum post in but wanted to get the thoughts of everyone working in investing.
I manage my own 6 figure portfolio, and I’m now in desperate need for a large sum of cash.
I am planning to liquidate / sell some of my stock investments and I’m unsure whether to:
A) sell my top performing stocks that have remained resilient throughout COVID-19 and have generated a strong return / profit over the years
B) sell my underperforming stocks that have been hit hard due to COVID-19 and take the significant loss
reasons for A) - I’ve generated a strong profit so maybe its time to sell Reasons against A) - they’re my best performing stocks that are resilient so it’s best to keep them during this pandemic as they’re the safest with room to grow more
Reasons for B) - time to cut a loss - no short term likelihood of recovery - these were my risky assets that do not perform well in difficult environments Reasons against B) - massively negatively hit (70%+ total loss) from COVID-19 so might be dumb to sell whilst down so much and would be best to wait out another 2-3 years where I could potentially recover most the losses if not all losses should they recover in the mid term
What’s everyone’s thoughts? Thanks
B. Momentum is a powerful force
A. Mean reversion is a powerful force
A common behavioral bias is to sell the winners and keep the losers thinking that they will turnaround. Always keep your winners.
Could also argue selling winners is considered discipline
Not in this context. Don’t let the disposition effect get you. It’s a good rule of thumb to hold onto winners and sell losers regardless. Behavioral finance at its best.
The research points to fund managers selling too much of both when a random pick would have been better. For your own investing, tax optimization might be the best determinant and that will depend on other factors too like when you entered the position.
How about doing it the old-fashioned way: forget about how they have done in the past. Look at their future prospects, and sell those that look the worst.
Agree with a poster MMPM above. Every time you don't sell your investment, you effectively re-underwrite it today.
Having said that, your losers might turn around if you believe the V-shaped recovery endorsed so strongly by Morgan Stanley.
If you are losing sleep and can't decide, sell a bit of everything and keep the same % exposures across both losers and winners.
An impossible question to answer.
How is it impossible? If someone is forced to liquidate their portfolio at current prices, you simply sell those assets with the least upside from today. In the middle of a recession, that would typically mean selling high priced, COVID-resilient stocks where you can not only crystallize realized gains but if the economy recovers, the forgone profit doing the opposite would want to make you cry. If you forced me to invest today in levered equities down 70% vs. NASDAQ stocks +15% from the January levels and I HAD to pick one or the other, I would pick levered equities most days of the week.
If that risk-profile makes your stomach turn upside down, then it's clear the answer is the opposite for you.
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