What Is the Best Time to Sell a Losing Stock?

investing.com:

Investors often ask me how they should handle stocks that have experienced long-term declines that have lasted for weeks, months, or even years.

The fundamental question on their minds is how to manage losing positions.

Well, the answer is simple:

There's no one-size-fits-all answer because every stock and every investor is unique. However, all strategies should have a common starting point: the initial investment.

The inability to manage declining positions often stems from a fundamental mistake made at the outset. Investors are often unable to explain why they bought a stock.

The answers are often flawed.

These justifications don't hold up, and when things take a turn for the worse, it's easy to feel lost.

The approach varies depending on whether you're focused on the short-term (like a trader) or the long-term (like an investor).

If you're operating in the short term, one of the most sensible steps is to set a stop-loss. The old trading adage, «Cut losses and let profits run,» still holds true.

Another option is fractional entries, which is quite distinct from randomly averaging down at a loss. Fractional entries involve determining your strategy in advance: how much capital to invest, how many entries, and at what levels or under what conditions.

If the stock continues to fall, you simply follow your predetermined strategy.

Consider selling at a loss to offset losses. Losses are part of any strategy and cannot be avoided. By planning how to use losses within your overall portfolio, you can recover them from gains in other stocks, taking advantage of tax benefits.

Lastly, consider the behavioral aspect, which is often overlooked but critical. Would a 20%, 30%, or even 50% drop in stock value cause you to panic, or can