One thing I have learned is that it is very easy to get scared in the stock market. Almost too easy. After all, this is real money you and I have in the market that we have worked hard for. Its natural to want to avoid any big sell offs and that sickening feeling of seeing your portfolio go down everyday.
For the last week the tech stocks have been the lead story in the financial news as they have been under sever pressure. Anyone who has shares in stocks like AAPL, AMZN, MSFT, FB, NFLX, and GOOG and a few others has had to deal with the mental stress of figuring out whether they should sell or continue to hold. Will those stocks keep going down? Should I bail now and preserve some gains? Should I just sit tight and try to ride things out?
General Sell Offs – Is This One?
What we have seen in the last week I think has been a general technology sell off. It hasn’t been company specific and some pundits have speculated that the stocks involved have all gone up too far too fast and some profit taking has been long overdue. Other pundits have come up with a variety of other reasons for the abrupt selling but there doesn’t seem to be any concrete reason that everyone can agree on.
The bottom line is that nothing is wrong with the technology sector or those companies in particular that would warrant caution other than the fact that all those stocks have gone up A LOT this year and some may be overvalued.
I have written a post on some of the good reasons to sell a stock and you can read that to find out when you might be justified in selling. But if you sell stock(s) purely out of fear after letting the all the daily news and noise get to you, it can be a portfolio killer.
I’ve said this many times in various places on my website: I think too many stock investors buy and sell their stocks way too frequently. Too many ins and outs based on greed, fear, and the desire to “actively” manage their money. If you continually get scared into selling your stocks every time there is a selloff, you won’t be able to make the money that buy and hold investors make by holding and riding those fluctuations out.
I may be wrong about this technology stock downturn and it may turn out to be the beginning of something bigger. I hope not but it could be. It always could be. But I would say that if you are selling just because you get the feeling that everyone else is selling and you get frightened easily, it will be difficult for you rack up any long term gains (which by the way, are taxed at a lower rate than short term gains).