As stocks across all industries are trading down, how do investors decide when and where to sell their holdings to generate some extra investing capital right now? In this segment of Backstage Pass, recorded on Dec. 1, Fool contributors Brian Withers, Rachel Warren, and Brian Feroldi respond to a member’s question.
Brian Withers: How do you decide which winner to trim to raise cash today? David Gardner talks about trimming the weeds and watering the flowers. I don’t know if you want to trim your winners to raise some cash. And you never want to be a desperate seller. Either of you have some thoughts on that one?
Brian Feroldi: Rachel, you can go first.
Rachel Warren: OK, yeah, I was thinking about this. Of all the stocks in my portfolio right now. I was very — I studied the stock market a long time before I got into it, and I really like the companies. Not all of them are performing as I would love right now. I own a lot of growth stocks. That’s definitely part of the reason behind that.
For me personally, I can’t see myself trimming many of my current holdings to generate cash. One thing I do often is reinvest my dividends. That could be a great way to get a little extra capital for investing. I always try to set aside some cash regularly, just particularly for the sake of investing so that I can continue to stay invested in the stocks I love and add to new ones.
Brian Feroldi: Brian Withers is like: “What’s a dividend? I don’t have any of those. [Laughter] I only buy companies that lose money.”[Laughter]
Brian Withers: Exactly. It’s got to have a negative bottom line, come on. [Laughter]
Rachel Warren: Oh, man.
Brian Withers: Jeff Reuben asks, we’ll finish up with this one, “Would you buy and average down from here?“
I guess I look at that as: If you are working and you’re saving money, you’re living below your means, meaning you have some money at the end of every month, you should be continually investing and taking advantage of the dollar-cost averaging into the market over time.
I don’t know that. You always want to buy the strongest companies. If the stock is down doesn’t necessarily mean that it’s a great buy. And so you want to make sure that you look at that.
Brian Feroldi: Yeah. To answer the question before, though, more seriously, I look at the companies that I hold, and I always ask myself: “Is the thesis on track? Is the reason that I bought this company still in track?”
By the way, it’s really easy to fool yourself into thinking the answer is yes when the actual answer is no. For example, I’m wrestling with that with Zillow right now. Yes, the thesis is still on track even though they torched the one high-growth part of the business.
But I would look at that.
You want to cull the losing businesses or the mediocre businesses from your portfolio, not the stocks themselves. Like Zoom for example, if you just look at Zoom’s stock price over the last year, you’re like: terrible, terrible company It’s down 70% from its high. But which number that we just got over there was bad? Was there one? [laughs]
Brian Withers: Yeah. I don’t think there was.
Brian Feroldi: This is why investing is hard. [laughs]
Brian Withers: Exactly.
Brian Feroldi: It has to be hard. If it was easy, everybody would do it.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.