FINANCIAL FOCUS: WHEN SHOULD YOU SELL STOCKS THAT ARE 'LOSERS'?

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

To the casual observer, it might seem that for the past several years, everyone has been a winner in the stock market. It's easy to understand why this view persists. After all, headlines trumpet the latest milestone achieved by the Dow Jones industrial average, and news accounts are filled with stories about people who have made vast sums by investing.

However, as is often the case, truth is different from perception. In reality, much of the stock market's record run-up has been due to the performance of a relatively small number of stocks -- mostly well-known blue chips and fast-growing technology companies. That leaves a lot of stocks that may not have done well -- and many of them have not done well.

Just because a particular stock has slumped for a while, does that mean it's a "loser"? Not necessarily. Nonetheless, far too many people "bail out" on stocks that have fallen in value. By selling when the stock price is down, these investors are doing the exact opposite of the classic "buy low, sell high" investment formula.

The key to making smart "sell" decisions depends on careful analysis of the depressed stock. Any number of factors may cause a stock's price to drop for an extended period of time. An energy stock, for instance, will suffer when world oil prices are down. Other stocks may flatten because, after their prices initially ran up on investor enthusiasm, it may take some time for earnings to climb enough to support higher stock prices. This has happened in recent years with several well-known stocks, including Wal-Mart. If investors had jumped ship while these stocks were stagnant, they would have missed out on tremendous future growth.

When, then, should you sell a stock that has performed sluggishly for some time? You need to determine if the stock's fundamentals have changed. Is a new management team in place? Have the company's products fallen behind those of its competitors? Or is the company in a fading industry.

If any of these fundamental factors have changed, then it may be time to consider selling your stock and using the money to invest in a better opportunity. But if you determine that the fundamentals are still sound, and that the company still has good long-term prospects, then you should look beyond its current performance.

It's very costly to constantly buy and sell stocks, and most investors are not successful in chasing performance. That's why it's almost always a good idea to find good, solid companies -- and hang on to them for the long term. Today's "losers" may be down -- but they might not be out. And when they rebound, you'll be glad you stuck with them.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.