With the return of market volatility, your first instinct may be to reach for the Alka-Seltzer. But if all those gyrations are making you queasy, consider this alternative to the fizzy stuff: Sell some stocks. This isn’t to suggest that you should try to time the market, just that the amount of stock you hold should be consistent with your tolerance for risk.
The process of figuring out what to sell is especially tricky if you own individual stocks. That’s because psychological factors are likely to interfere with your decision. You usually buy a stock because it’s cheap, or it has momentum, or the underlying company offers fantastic products or services (think Apple). You should probably sell if your rationale fails to materialize or the story changes. But you may have trouble unloading a winner because it’s been so good to you, no matter how expensive it has become. And you may have as much trouble letting go of a loser no matter how many problems it faces because doing so would confirm the stupidity of your initial purchase. Tax issues can also affect selling decisions.
With fear, uncertainty and doubt running high, this is an especially good time to cull the turkeys from your portfolio. Not only is volatility back, but the chances are high that many undeserving stocks have been swept up in the stunning bull market, during which Standard & Poor’s 500-stock index has soared 77.6% from its March 2009 low. Share prices of companies with problems eventually will return to earth.
In today’s Kiplinger’s Personal Finance, I identify five fairly well-known stocks that I consider unattractive. None is on the list because of excessive valuation. Instead, I point out companies with fundamental problems that may not yet be reflected in their share prices. If you own any of these stocks, consider selling them. If you’re an aggressive investor, consider betting against them by selling short or buying put options.
For the full story and five stocks to sell go to Kiplinger’s Personal Finance.
Sorry, no ETF news today. But if you want to short the entire stock market, take a look at ProShares Short S&P 500 (SH).