To avoid getting swept up by bearish market ask two basic questions about your stocks

Sell if fundamentals of company weaken, or if you see bargains

Investing

Dollars & Sense

April 30, 2000|By Pat Dorsey | Pat Dorsey,MORNINGSTAR.COM

If you're like most investors, the Nasdaq sell-off over the past few weeks has made you a little nervous, even after the big rebound over the past couple of days. I know I started to feel a little queasy during April 14's plunge.

Although it's easy to get caught up in the play-by-play on CNBC and worry about what's going to happen in the next hour or two, it's better to try to think past the end of the trading day. As painful as it is to watch your stocks tank, it's worth remembering that there are really only two reasons to sell a stock -- either something about the company has significantly changed, or you have a better place to put the money.

If something about the company has changed -- for example, growth has slowed, management has changed, or the competition has become more aggressive -- you've a solid reason to consider selling. In all three cases, the company is not the same as when you bought it, and you're perfectly justified in reconsidering whether you want to own a piece of it.

The other solid reason to think about selling is if a more promising investment opportunity presents itself. If you think a stock you don't own is likely to give you a better return than a stock you do own -- after taking into account the tax hit, of course -- it could be worth bailing out. If you think about it for a minute, selling a stock because the entire market is heading south doesn't really fall into either of these categories.

I think the best advice for investors during big sell-offs comes from the 1989 movie "Say Anything," which I recently watched on late-night TV for the umpteenth time. There's a scene at a big party in which John Cusack grabs an unruly party goer by the shoulders, shakes him and yells, "You must chill! You must chill!"

Bingo. Just chill out, think about the fundamentals behind the stocks you own and keep an eye out for bargains.

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