Many investors are reluctant to sell stocks at a loss, thus admitting that they made a mistake when they bought a particular issue. They tell themselves that they will hold on until the stocks returns to the break-even point and thus prove they did not really make a mistake.
However, stocks that go down may continue to keep falling. Savvy investors know that it’s best to cut losses and let winners run. If you take losses, you probably will cull the poor performers from your portfolio and wind up with better companies.
Thus, you should track your stocks carefully and sell whenever an issue is trading at price significantly below its purchase price. Another approach is to place a “stop-loss” order with your broker, calling for a sale at a pre-determined price.
