Magazine article Black Enterprise

When to Hold a Stock: Sometimes Resisting Your Urge to Sell in a Down Market Is the Best Strategy

Magazine article Black Enterprise

When to Hold a Stock: Sometimes Resisting Your Urge to Sell in a Down Market Is the Best Strategy

Article excerpt

It's a normal impulse. You bought what seemed to be a solid, blue-chip company with prospects, but share prices have steadily slipped. And your gut has steadily tightened. Now you're ready to sell. But before you head for the exit, take a deep breath and a closer look at the stock Experts say holding on to a slumping stock that still has intrinsic value may end up being a wise move.

"When you're reading headlines about stocks going down every day, it can cause you to jump on the bandwagon to sell," says Patrick Lyons, a portfolio manager with Durham, North Carolina-based NCM Capital Management Group. Sure, there are times when it's best to take a loss and move on, but a rash decision based on fear, and not facts, can cause needless portfolio pain.

One way to determine whether a beaten-down stock is a keeper is to investigate whether anything has changed within the company to justify its falling price, says Paul Larson, equities strategist with Morningstar. When evaluating a company, Morningstar analysts rely heavily on whether its cash flow is strong and poised to remain so. A slumping stock could turn out to be a bargain. "In that case you actually want to buy more," Larson says.

Often, good companies take it on the chin just because they are in an out-of-favor industry. For instance, Apple's shares slid even as its new iPhone 3G flew off the shelves. 'Apple is a strong stock in a bad industry," says Lyons, whose company owns the stock in its client-managed accounts. "But I think it will pay off down the line. …

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