It’s time for some portfolio spring cleaning. Go through your entire portfolio of publicly-traded companies and ask yourself one question: if you had the cash equivalent to the value of your position, would you buy that stock now?
I want you to be ruthless with yourself, brutally honest to your money. If the answer is no, then you should consider selling and closing out the position.
In 2012, in a private conversation with Rick Rule, who’s made hundreds of millions of dollars speculating in stocks for the last 40 years, he told me that one of the most difficult things to master is to not give a stock you own any favor just because you bought it at a higher price.
The past is in the past, and you can only invest looking forward. Reviewing your portfolio, if you wouldn’t use the cash today to make that same trade, then why hold the stock? By holding a bad stock, you’re essentially buying it all over again.
You’re far better off reallocating the money to a stock you would buy today. Add to the position of a current holding or a new stock, but in either case, never let your money die just because you hope to break even one day.
Forget about what you lost, and defend what you have by only owning stocks that you would be happy to buy right now.
In 2012, I purchased an investment property in a southern state for $165,000. Since then, the property has been a real loser. The cash flow has under-performed for years, yet when I asked a realtor to list it for sale last year, I changed my mind after they told me I could only sell it for $170,000.
Between realtor commissions and other closing costs, I changed my mind for all the wrong reasons.
So today, I called up the realtor and took the advice I am giving you now. I am going to sell the property, probably take a small loss or break even, and then I am going to take the $165,000 used to purchase the property and put that money to better use.
The truth is that I wouldn’t buy this house today if the cash was sitting in my checking account. It’s a check I would not write, so I am forcing myself to do the right thing and sell it and move on.
I’ll be able to cash out of an investment I wouldn’t buy today, and reallocate the funds to some of the stock suggestions we will be covering over the coming weeks.