"Regretting a Stock Pick? Unveiling an Exit Strategy from a Poor Stock Position"
Imagine this: an investor finds themselves in a sticky situation. They stumbled upon what seemed like the ultimate stock tip from a fervent social media community. They snagged shares of "whatever" at a sweet $20 apiece, and before they knew it, it soared to $30 faster than one could say "to the moon!" Naturally, the investor doubled down because, well, it seemed glaringly obvious that this stock was destined for the stars.
But alas, the universe had different plans. It plummeted to $15, amidst whispers of shady dealings. Yet, they clung to the age-old adage: buy low! So, they bought more, convinced of its eventual triumph (or at least a return to $30 for a tidy profit). But no luck, it stubbornly sank to $10.
Months passed, and this rollercoaster seemed stuck around $10, like a theme park that never shuts down. They held on, hoping against hope for a miraculous turnaround, a profitable quarter, or a white knight to acquire their "amazing" tech.
But the social media crowd moved on to newer, shinier prospects, and they realized this stock wasn't their golden ticket. That fancy sports car bought with their gains. Not happening. At this point, they're not even expecting gains. Their average cost sits at $22, and they've resigned to sell when it inches back there.
But selling now? Still not the right time. The moment they consider it, it'll surely bounce back, right? They can't bear the thought of missing out. So, they hang in there, convinced it'll hit $22! Yet, it plunges to $9, then $7. Ouch!
So, what now? Their $120,000 dwindles to under $40,000. Or perhaps it's their $12,000 now less than $4,000. Heck, even their kid's birthday fund, $1200, shrinks to under $400. That still feels bad! What's the move?
Here's the simple answer: if their research indicates this stock isn't right for them, it's time to let it go! Easier said than done, sure. If they can't bring themselves to sell everything, there's a system to share — DCA OUT. It's not perfect, but it's a way out, focusing on emotions and feelings rather than ideal math.
To curb emotions while keeping hope alive, here's a four-step plan:
**Step 1:** Divide their total shares by 10.
**Step 2:** Choose a special day of the month (perhaps their pet's birthday).
**Step 3:** Sell one-tenth of their shares (from step 1) every month on their chosen day.
Ten months later, they're free from this stock, no matter what. Now, the exciting part: what to do with the cash? If it's their hard-earned money (not borrowed or for short-term needs), it can be reinvested! Seek professional help if they're feeling overwhelmed. And remember, it's okay to miss sometimes in investing; nobody's perfect.
As long as the homework has been done and there is a solid investment management process, here's an example of what could happen:
**Step 4:** One could take the funds from the sale and invest them in a different, well-researched security or a Portfolio managed by a professional the day after the sale.
In ten months, they'll have a portfolio of carefully chosen securities. They could keep the momentum going by repeating this process until they have a comfortable portfolio of securities, continuously reviewing and monitoring them. Managing a diversified portfolio might be work, but it's better than the alternative. If they are honestly not up to it then let professionals manage it for them.
There you have it! I hope this helps, and feel free to reach out if they need further guidance. Stay tuned for more tips in the future.
Michael Goldenberg, CFP®
CEO/Co-Founder, Senior Financial Advisor
AFIN Family Wealth Management
1 Northfield Plaza, Suite 521 Northfield, IL 60093 Main: 630-489-6581 Fax: 630-686-6727
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Disclaimer:
1.) The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. Actual investment results may be more or less than those shown. This does not represent any specific product [and/or service].
2.) All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
