Should Investors Sell Stocks to Buy More Stocks?

As shares throughout all industries are trading down, how do traders determine when and where by to offer their holdings to crank out some extra investing capital suitable now? In this segment of Backstage Pass, recorded on Dec. 1, Fool contributors Brian Withers, Rachel Warren, and Brian Feroldi reply to a member’s concern. 

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Brian Withers: How do you make your mind up which winner to trim to increase income today? David Gardner talks about trimming the weeds and watering the bouquets. I don’t know if you want to trim your winners to raise some funds. And you hardly ever want to be a determined seller. Either of you have some thoughts on that 1?

Brian Feroldi: Rachel, you can go 1st.

Rachel Warren: Okay, yeah, I was wondering about this. Of all the stocks in my portfolio ideal now. I was quite — I studied the stock market place a extended time ahead of I acquired into it, and I actually like the organizations. Not all of them are doing as I would appreciate correct now. I have a ton of development stocks. That is unquestionably element of the motive driving that.

For me personally, I won’t be able to see myself trimming many of my present-day holdings to create income. One point I do usually is reinvest my dividends. That could be a terrific way to get a little additional capital for investing. I usually try out to set apart some hard cash on a regular basis, just significantly for the sake of investing so that I can go on to remain invested in the stocks I appreciate and include to new ones.

Brian Feroldi: Brian Withers is like: “What’s a dividend? I really don’t have any of people. [Laughter] I only buy companies that eliminate dollars.”[Laughter]

Brian Withers: Particularly. It is obtained to have a destructive bottom line, come on. [Laughter]

Rachel Warren: Oh, person. 

Brian Withers: Jeff Reuben asks, we’ll complete up with this one particular, “Would you obtain and normal down from here?“

I guess I glance at that as: If you are doing work and you are saving funds, you happen to be residing below your indicates, which means you have some dollars at the end of every month, you should really be frequently investing and having benefit of the greenback-cost averaging into the market place over time.

I don’t know that. You often want to buy the strongest corporations. If the stock is down doesn’t necessarily suggest that it really is a wonderful obtain. And so you want to make absolutely sure that you glance at that.

Brian Feroldi: Yeah. To reply the concern in advance of, nevertheless, more critically, I glimpse at the companies that I keep, and I normally ask myself: “Is the thesis on track? Is the rationale that I acquired this firm still in monitor?”

By the way, it’s definitely easy to fool oneself into considering the respond to is sure when the precise remedy is no. For illustration, I am wrestling with that with Zillow proper now. Indeed, the thesis is even now on monitor even while they torched the a person substantial-advancement portion of the enterprise.

But I would glance at that.

You want to cull the shedding organizations or the mediocre firms from your portfolio, not the stocks them selves. Like Zoom for illustration, if you just glimpse at Zoom’s stock price tag above the final yr, you happen to be like: horrible, horrible company It can be down 70{067fe502a31e650c5185733df64156900ec267ebfd90cbebf0b3fe89b5b413d8} from its large. But which range that we just bought in excess of there was lousy? Was there one particular? [laughs]

Brian Withers: Yeah. I will not believe there was.

Brian Feroldi: This is why investing is really hard. [laughs]

Brian Withers: Specifically.

Brian Feroldi: It has to be hard. If it was straightforward, all people would do it.