The bear market is officially here and stock portfolios around the world are just starting to plunge into the red – learn how to cut your losses like a pro with investment manager James Whelan.
Nobody ever wants to sell at a loss, but with the current turn of the global markets, losing money is a stark reality that many investors are about to face.
As conflict rages in Ukraine and central banks double interest rate hikes to rein in soaring inflation – Wall St. a declared that the dreaded “bear market” has officially arrived and chances are it is here to stay…
So, in the face of a stock market that looks set to decline for the foreseeable future, how can investors hope to minimize their losses and save as much money as possible?
When should you sell?
James kicked things off by saying that investors should never sell unless something major has changed in the fundamentals of the stocks they own.
“I have a saying with selling that you only need to sell if the narrative has changed or something has fundamentally changed in the stock. If you bought a [stock] because you saw the growth numbers were going to stay consistent and now because the world (the narrative) has changed, there’s not the same reason to believe that [stock].”
“If you own a graphite stock and for some reason the world will stop using graphite, you have the answer. If, however, the stock is the same and the narrative is the same and the only thing that has changed is the price, then maybe put on your big boy pants and buy some more.
“That being said, have no illusions about the growth numbers for some tech stocks. They’ve been pushed around by duct tape, unicorn farts and a healthy dose of goodwill.
What is the difference between retail and institutional sales?
Asked whether or not retail investors should turn to big institutions for advice on selling, James said investors need to remember that “time frame” is everything.
“Institutions usually have a set framework for buying and selling stocks that revolves around a time frame. Everyone forgets deadlines. A bunch of pumped-up hedge fund bandits will keep stocks ticking. They don’t care because they’re only here for the short term.
“The longer-term value guys will sit on a loss for a decade as long as the rest of [their portfolio] helps relieve pain. If you can get 6 out of 10 calls correctly, you’re a great investor, but it’s all a matter of timing.
What about tax-loss harvesting?
With tax season fast approaching, many investors are wondering if now is a good time to weed out the losers and do some good ol’ tax-loss harvest.
James again stressed the importance of not panicking when selling due to a temporary price change. Although he stressed that he does not advise on tax matters, James added that selling at a loss to claim “compensation” against future gains can be a good idea, but again it depends on ultimately the financial situation of each investor. .
Offering timeless advice, James recommended the following quick tips for investors looking to minimize future damage and cut losses like a pro.
“Set a stop loss if you have to…but don’t set your stop loss at a price you’re happy to lose money at. You might as well put the money back. Set a stop at a price you’re happy to lose money at. mistake about the stock.
“The use of leverage is reserved for short-term agents. If you want to invest knowing that your portfolio could be wiped out overnight when the only thing that has changed is the price, you’re in for a bad time.
“For value investors: check the time frame, check the narrative, check the stock is still where it needs to be. Buy more or sell it. Then turn off your fucking computer and get out.