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Patrick McKeough is one of Canada’s top safe-money advisors. The Wall Street Journal, Forbes and The Hulbert Financial Digest have all recognized his ability to find stocks with hidden value. He is editor and publisher of The Successful Investor, Stock Pickers Digest, Wall Street Stock Forecaster and Canadian Wealth Advisor; inventor of the Quick Profit/Value System and the ValuVesting System™. A best-selling Canadian author, he wrote Riding the Bull, the book that predicted the 1990s stock-market boom.

Stock investing advice: The best way to react to bad news about a stock you own

November 14, 2011 -  2 Comments
Posted by: Pat McKeough Filed in: Stock Investing
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There is plenty of bad news plaguing the markets these days. But bad news about an individual stock can crop up any time, in good markets or bad. It’s always upsetting, but it’s not necessarily a calamity.

When you hear bad news about a stock you own, it’s easy to react impulsively and sell. But all investments come under a bad news cloud from time to time. If you always sell on bad news, you’ll pay lots of brokerage commissions, but you’ll never make money for yourself.

To decide when to sell on bad news, you need to develop perspective. You need to be able to tell if the company has hit a bump in the road or gone off a cliff. Here’s our stock investing advice on the good reasons to sell on bad news, and the bad reasons.

Good reasons to sell:

  • News of criminal activity: If a company is accused of underworld ties, money laundering, or even “accounting irregularities,” it’s probably a good idea to sell. Because of libel law, outsiders rarely make such accusations unless they can back them up. You may not miss much if the accusations prove unfounded. But you could lose 100% of your investment if they are true.
  • Loss of a big part of yearly sales: If a company has just one product and it proves to be dangerous, ineffective or uncompetitive, sell the stock. Don’t wait for the company to launch a new product.

Don't miss your chance to download Pat McKeough's free report, "Stock Market Investing Strategy: Pat McKeough's Conservative Investing Guide for Making Money & Cutting Risk." In this report, Pat gives you simple, plain-English advice that can help you cut your portfolio's volatility — even in unpredictable markets like today's. Click here to download your copy and get started right away.

Bad reasons to sell:

  • Weak quarterly earnings report: One quarter of weak profit may simply be a normal fluctuation. By the time the news of a weak quarter comes out, it may have already had its impact on the price of the stock.
  • Strikes: A single strike rarely puts a lasting dent in a company’s profitability. However, chronic labour troubles are a bad sign and may be a good reason to sell.
  • Environmental, regulatory or anti-trust problems: These laws are complicated and constantly changing through court and bureaucratic decisions, so it’s easy for well-meaning companies to run afoul of them. Also, unethical companies sometimes raise these issues to hurt their competitors.

Knowing when to sell is the hardest part of investing. Our stock investing advice is that you’ll make your investment life easier and more profitable if you mainly choose high-quality investments with honest managers and established profit-making, reputable businesses. You can make money by holding these stocks and collecting dividends over long periods, even if you sit through lengthy price setbacks.

If you’d like me to personally apply my time-tested investment approach to your portfolio, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.

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2 Responses to “Stock investing advice: The best way to react to bad news about a stock you own”

  1. Peter on November 14th, 2011 at 12:06 pm

    Hello,
    before I become a client, please tell me if I should sell or hold the following stocks- ARF,CCO,CFX,DRX,ECA,HPX,MFC,MX,QEC,RIM,TRE,WFT,LFRGY,TTM- taken significant losses on these. Thank you.
    Peter

  2. Micheal on November 14th, 2011 at 4:41 pm

    Hi Peter

    Experiencing losses on your investments is never pleasant. I recommend you take a look at our daily email on “The best way to react to bad news about a stock you own”: http://www.tsinetwork.ca/daily/stock-investing/stock-investing-advice-react-bad-news-stock/

    Unfortunately, I can’t provide you with an analysis of your portfolio. However, if you are looking for assistance in managing your portfolio, I recommend looking at our portfolio management services: http://www.tsinetwork.ca/portfolio-management-services/patrick-mckeough-professional-portfolio-management-from-pat-mckeough

    Thanks for your comment.

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