Indecision... it's enough to make us crazy. Just as a general statement, I would think we all find ourselves in this place dozens of times a day- trying to decide if we should or should not do something or other. The ultimate decision, unknown to us, usually comes from an irrational decision regulated by our surroundings, mood, company, or any of a plethora of input. The same decision may be very different going day to day depending on our mood or different non-information we seem to be basing our verdict on. The big question is, was it rational, informed and sensible? Was it a snap decision or did we give ample thought to it? The fact is, it's you who will suffer or benefit from the decision- how do you make your financial decisions... are they with enough forethought and information?
The decision to buy or sell a security takes great prudence to make the "right" decision- but what determines if it was the "right" decision? Oftentimes, I am asked if it is time to sell so and so stock, or if it's a great time to buy it. Is it too high or did it hit a bottom? It's important to consider more than the aforementioned questions: one must dig in to truly make an informed decision... and then hope for the best. Here are a couple of logical reasons one may consider when buying or selling a security position:
Research- Did you do your research: rule number one. Always make an informed decision, and an informed decision about anything can't be informed if you don't know the facts. Whether it be a security or a sofa, know your facts. Do your research. Look at the trends, and compare them to others in their category. Does the company make money, or like some of the dot-coms of history, post large losses every quarter? There's no guarantees when playing in the market, but being an informed investor is a smart investor.
Tax advantages- If you sell it, will it constitute a loss or a gain? If it is a loss, you can off-set your losses against gains dollar for dollar when you do your taxes, and "save up" or carry-over your losses to the next year or years for as long as you have them, or have gains to write them against. If you run out of gains, you can utilize up to $3000 of losses before putting the remainder in storage for the next tax year(s). Long term losses (where you held the security of more than one year before selling for a loss) are taxed differently than long term gains (held more than one year). Long term gains are taxed at a flat 20%, where short term gains are taxed at your current tax rate, which may be more or less than 20%. Consult your tax advisor or Certified Financial Planner® before you decided to sell, and make sure you look back to last year to see if you have any stored-up losses to offset your gains for this year- it may be very beneficial and save you on your tax bill.
Do you need the benefit of the position? Many folks live on or supplement their income with dividends from their securities. If you sell the position, will it affect your monthly income? Remember- the stock or security may go up and down with market fluctuation, but the dividend will stay the same until or if the company decides to change it, so a sell may affect your income stream- be sure to look at all the benefits of the position, not just if it's up or down.
This is by no means meant to give you advice on how or if to buy or sell a securities position- I just want to open your eyes to the fact that there's more to making financial decisions than "if it's up or down." Do your homework, and work with a tenured, trained investment professional to help you decided how to design a well-balanced portfolio suitable to your aims, goals and objectives. As Sy Sims, the men's clothier used to say in his commercials: "An educated consumer is our best customer." He was a smart guy that Sy... See you on the tee!
