When is the Right Time to Bail on a Stock

If I could put my finger on the one solitary thing I dislike the most, it's getting whipsawed. Nothing in this wild game we play bugs me as much as being up 50 cents or a buck one day, only to have to decide what to do the next day as the stock is back down to my buy in price. Do I let it wiggle lower? Should I hold tight to some imaginary stop? Will it shake me out, only to roar higher?

Yet it's undeniable. It's part of this game and it's something each and every one of you are going to have to deal with at some point. If you get involved in any type of investing there are times when a stock is going to confound you like that. The big question is this: Do you stand on some silly principal, or do you take matters into your own hands and do something?

I think you have to move more times than not. Let me explain. Suppose you buy XYZ at 50.50 and it closes at 51.00. You feel good, things went your way. But the next day the futures are down because of excess dryer lint, locusts, floods, hurricanes, oil, hangnails, Martians, or what have you. So, your stock opens at 50.65 and looks to fall from there. Sure enough ten minutes later it's at 50.50. Do you sell or hold????

My theory is that you look around the market. Nothing's going to swim upstream unless it really has the momentum or some form of news to propel it. So, if the overall market is fading, chances are your stock is going to fade too. More times than not the best thing to do is bail out, and if you like the darned thing, go back in the next time it runs up over 50.50.

Sure you're going to eat up commissions, but please don't be foolish. Take the hit and move on with your life. I'd rather bail out flat five times, than take a 1 dollar hit on a 1000 shares of stock.

Now, if your stock is fading, but you see signs that the market is starting to perk up, maybe it's worth holding on a bit. Maybe it's worth holding to your stock right down to your stop, so that if the market turns everything higher, yours will turn with it.

The choice isn't easy and you're not going to get it right all the time. There are times you'll sell flat, at the very low of the day and kick yourself. There are times you'll hold to your stop, and realize you should have sold flat. But then again, there are times it all works and you feel like a million bucks because you didn't get shook out and the stock recovered.

There is no easy answer to this and I don't care what market guru tells you there is. I struggle with it daily, and you will too. Try and use your best judgment, don't be afraid to pull out flat, and don't be afraid to go right back in if you have to.