Selling stocks at a loss is for losers

While the argument can be made to sell stocks in order to cover taxes on capital gains in another stock or to sell a stock that has fallen in price, we rarely ever sell a stock at a loss. Why? Because we never own any stocks we like to sell. We know that over the long term, stocks in general always go up. Always. So there's always this little tinge of regret every time a sell triggers. Yes, we are making money on that sale and that ALWAYS feels good, but we know we are most likely missing something.

See, our philosophy of capturing quick(-ish) gains and selling in order to compound those gains means that we are missing any potential stock jumps that may come along the way. We like to tell ourselves that this also means we get to increase the chances of missing out on a stock drop as well, but we generally like those even if we are holding a position in that stock. While it sounds like we are day-trading or playing penny stocks, nothing could be further from the truth. We are applying the quick-move methods of the day-traders and penny stock buyers, but applying it to really stable, long track-record, usually dividend-paying companies.

Most will tell you that these types of stocks don't have high growth, but that is if you are buying and holding just for stock appreciation long term. We aren't doing that. We are finding places in the market where really great companies are getting dragged down in price based on news (and usually emotions) that have nothing to do with the company or their ability to make money.

Here is an example of a recent trade that was completed.

In the week or so leading up to the Brexit vote on June 23, 2016 we knew stocks were going to be going nuts no matter which way the UK voted in the referendum. So we picked a few stocks that we wanted to keep our eye on that would be ripe for the picking. Dow Chemical (DOW) was at the top of this list. They were in the middle of a merger with DuPont (which is good), they have a hefty worldwide footprint (so that an exit vote would probably drag it down a few notches), a 3+% dividend yield (including an ex-dividend date just after the vote; allowing us to wait until the last minute and still capture some extra money tossed in the deal). All of this adds up to a stock that we wouldn't mind hanging onto even if we had to keep it for years. We'll get paid fairly either way and it WILL go up eventually.

The day after the Brexit vote, DOW was down $2 per share from its high the day before, so we bought in at $51.90 per share. We kept a little more money on the side, hoping that over the weekend the news would be all over how devastating this would be for the world and the price would drop more on Monday. They did and it did, so we bought more at $49.90 per share when it dropped $2 more. That was it for us and over the next couple of weeks the lowest DOW would get was $47.51 per share. Thinking about it later we probably should have bought that second $2 drop again, but like bluffing through the flop and the turn in Hold'em, pulling the trigger on the river is the hardest bet to make and we just felt we had enough of our portfolio in that one stock and to increase it more would be too greedy. Not sure what Warren Buffett would have thought of that trepidation.

Once the ex-dividend date passed, we set a limit sell order for the whole lot at $53.90 per share. That is above our normal 3% profit take that we usually set for limit orders, but this was us betting that DOW would return to it's previous level rather quickly. It took almost exactly a month for our target to hit and the position to close and for us to take a quick and easy 5.7% profit on our investment.

As you can see, we are making what looks like risky moves while everyone else is freaking out, but we are making moves using solid companies with solid data to back up our research. We were actually excited as the stocks were moving down. If we had more free cash, we probably would have added more to other positions we had. After all, it's basically like a sidewalk sale for stocks!

Buying stocks from stable, performing companies is never risky if your holding term is long enough. If you need to close the position sooner rather than later, this approach may not be very wise, but time is on our side and we had no problem waiting for DOW to go back up to $53.90 per share no matter how long it took. That is why we rarely ever sell a stock at a loss. We don't ever own any stocks that lose long-term. At least we don't think we do.

If you would like to know the next time we make a trade like this, be sure to check out our $1 per year stock alerts.

Do you think you would have made this trade? Did you profit off of Brexit like we did? Let us know in the comments below!

Chris grew up in the United States but felt the world calling. After working throughout his twenties climbing the executive ladder, he left the corporate world in order to have the free time needed to focus on family more than money. Since then he has never held a regular job and spends his time honing his skills to make money grow on trees.He now travels the world with his wife and two sons.

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