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Ask Geri: Should I Sell a Losing Stock to Buy Another Stock?(5-min read)

Hi Geri,

I got Truly Rich Club‘s email recommendation to sell FGEN (PSE: FGEN) shares and use the proceeds to buy MER (PSE: MER). I have a 2.5% loss in FGEN. Should I really sell it and buy MER?

Thanks!

Migz, via email.

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Hi Migz,

Caveat emptor. I can sense the hesitation from your email since you have a losing position in FGEN. This is normal. Allow me to confirm that yes, I also received the TRC stock recommendation to sell FGEN and use the proceeds to buy MER. However, if you’re not comfortable to do that, then allow me to give you some more points for consideration.

My initial read on TRC’s reco to sell FGEN and buy MER is that they expect MER to recover much faster than FGEN, to the point that they even recommend selling FGEN at a loss. The reco also mentioned the attractive dividend yields that MER pays out, which is now even more attractive given the much lower prices.

Personally I don’t have holdings in either MER or FGEN, but per my limited observation of the two stocks, MER is usually more active than FGEN, so in case both stocks recover, I would expect MER to move faster (or recover earlier) than FGEN. This is a natural exercise for stocks traders and investors alike, shifting from a slow horse to a faster one, even if they still have losses, even if they are forced to take paper losses into actual losses, because they expect the faster horse to more than cover for the realized losses.

You mentioned you’re down 2.5% on FGEN, not sure how much your exposure is but assuming PHP 100k, then you’re down PHP 2,500 – an amount which you will surely recover when market recovers. It’s really up to you whether you follow the TRC reco or not (sometimes I don’t) since we all have different portfolio situations and investment horizons. You are (or should be) in the best position to decide what will be beneficial to your portfolio.

trc-thumbnailTRC will serve as a guide (like other stock market services out there), but at the end of the day, it’s your money, and it will be you who will execute (or not).

CUTLOSS THRESHOLD

To guide you further in considering whether to sell, most investors set a cutloss threshold like 7-8% loss wherein when this is hit, they sell the position no questions asked. In this regard, the 2.5% loss is still far from being worrisome, and should be easier to stomach, should you decide to sell.

SELL HALF

You can also consider selling half (or a portion) of your FGEN holdings and use the proceeds to buy MER. This way, you still have exposure in FGEN (in case it recovers) while you get to ride MER too.

In our previous post, we also outlined a number of other reasons on when you should sell your position. You might find them helpful. Click here for the article: When to Sell Your Stocks? (Part 3).

PORTFOLIO MANAGEMENT

Previously mentioned that you are in the best position to manage your holdings, whether to buy or sell. Another key lesson will be portfolio management: our goal should be to grow our portfolio, to grow the money we invested in the stock market regardless of what stock we used to grow it. With that said, we should not fall in love with any stock (I am personally guilty of this), and we should be able to sell the slow ones (with no attachments) as soon as we find better alternatives. On the flip side, if frequent buying and selling is not within your investment OHA, then you may choose to forego selling FGEN since you are very long term and the paper losses are still bearable, then just buy MER or don’t buy any stock at all. Depends on your objectives, horizon and appetite.

CHARTING

Lastly, below are the charts of MER and FGEN as of today, lunch break, plus some simple technical analysis from yours truly.

pse_mer_27dec2016
MER

MER has been down significantly since July but it is up 2.16% as of this morning’s trade. MACD and Stochastics are also both pointing up, where MACD started to look upwards as early as 13Dec2016. RSI is also pointing up, indicative of recent buying activity.

 

As of today, MER also touched its 20-day moving average (MA) which should be a good sign if it stays above that. There’s also a big volume 7 trading days ago on a red day. Could that volume be the last of the selling / outflows? Could it be the bottom? Are we going to see a slow recovery moving forward? Only time can tell.

One might argue that MER being up today is because TRC released a buy reco, so TRC members are buying but one can also argue that TRC investors are mostly retail and cannot possibly sway the price action that much. Who knows? I’m more for the latter. Most likely, many market followers (including TRC) have spotted this opportunity in MER. But those who did buy may be smiling right now, especially if we look at how FGEN fared especially today.

pse_fgen_27dec2016
FGEN

FGEN is also down significantly but based on its MACD (today) and Stochastics (3 trading days ago), both still point to a downward price trend. There’s good volume today too but as of lunch break, FGEN is down 4.7%. RSI is also looking downward. Overall, technicals-wise, not so good.

Could it be that TRC is also monitoring these technical indicators? Could be since MA, MACD and Stochastics are among the easiest to read indicators.


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3 thoughts on “Ask Geri: Should I Sell a Losing Stock to Buy Another Stock?(5-min read)

  1. Hi! I got a question on what to do if FGEN’s loss is 38%, should I sell? I have been waiting for months for it to recover but it keeps on counting losses.

    1. Hi. I can only give you brief advise because I don’t know your whole portfolio, and how much of it is in FGEN, and how much is in cash. Caveat, please don’t blame me if it suddenly goes up LOL.
      1. FGEN is still on a downtrend but I’ll be watching the 14.90 and 14.40 levels of support if it holds. This might serve as support so there can be a bounce from there which can make your losses slightly smaller. Or consolidate there and build a base before starting to recover. Beyond these levels I will lighten up already. I hope FGEN is just a small part of your portfolio despite the 38% loss.
      2. If FGEN is more than 50% of my port, either I will add cash or sell a portion of FGEN so that I have buying power or around 50% of my whole portfolio and try to win in some trades to recover my FGEN losses. Consider as well whether you can stomach taking losses in FGEN (the whole 38%) and just consider it as your tuition fee. Or sell some to lessen the pain and allow some of your money to move on.
      3. Next time I will not let my losses reach 38%. I keep a cut-loss of 8% of invested / traded amount per stock, and this 8% should be at most 1% of my whole stocks portfolio.
      4. The classic answer is if you’re long term (30 years?) then maybe you can hold on to it. Experts dont recommend averaging down though on a losing trade.
      May you have a richer life Charmaine.

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