Investing Myth: Why Selling at the First Loss Is a Rookie Mistake

Key Points

• Selling too soon is a common mistake made by beginners and even experienced investors.
• If your stock suddenly slumps, don't act impulsively -- take some time to dig into why.
• It's often best to just hang on for the long haul, as long as you remain a believer.
• These 10 stocks could mint the next wave of millionaires ›

There are many rookie investing mistakes, and I've probably made most of them. One of the worst is selling a good stock too soon. This can happen when you sell a stock at the first loss, and it can happen if you just have a short attention span and see some other exciting stock that's caught your interest.

It can also happen if your stock has headed south and you sell without taking the time to dig deeper into what's happening, to determine whether the company is facing a short-term or long-term problem.

Image source: Getty Images. Remember that the stock market as a whole, and the individual stocks within it, don't rise in a straight line. It's a jagged line, sometimes very much so, as volatility is simply a part of stock investing. Occasional pullbacks happen.

Plenty of terrific stocks with amazing track records have fallen sharply or been lackluster performers for prolonged periods. Think of Netflix, for example, which saw its stock plunge 35% in one day in 2011 after it posted a big loss of subscribers who were not thrilled by price increases and some management moves. Apple shares have fallen by more than 30% multiple times in the past decade. Amazon's shares fell by more than 90% at one point long ago.

Clearly, those amazing stock performers have been worth holding on to for decades -- despite various big and small price drops. It can be hard to hold when a stock drops, but unless you have really lost faith in the company after researching its situation well, holding on is often the right thing to do.

Those who have made gobs of money investing in such great companies have typically done so by hanging on for many years. Still, if you find yourself torn about what to do with a stock that has fallen, remember that you can always sell some of your shares. That can sometimes be an effective compromise.

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Selena Maranjian has positions in Amazon, Apple, and Netflix. The Motley Fool has positions in and recommends Amazon, Apple, and Netflix. The Motley Fool has a disclosure policy.

Investing Myth: Why Selling at the First Loss Is a Rookie Mistake was originally published by The Motley Fool

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