No matter how smart you are, you’re bound to have some duds in your portfolio at some point, believes
CNBC’s Jim Cramer. What matters, according to him, is how you handle them. Here’s Cramer’s advice for investors with losing stocks.
Investors should never sell off stock that’s performing well to keep bad ones afloat, according to Cramer. He thinks fundamentally poor stocks are not likely to get better.
“Never sell your winners to subsidize your losers,” Cramer said. “If you need to raise money for whatever reason, just take the darn loss and sell something that’s underperforming.”
“Sell the losers and wait a day,” he continued. “Hey, look, if you really want them, go back the next day and buy them. I bet you won’t want to. Once they’re out of your portfolio, I doubt you’ll be tempted to bring them back.”
In the same vein, Cramer thinks it’s important to avoid hanging on to losing stock while hoping for a takeover. Few bad companies actually get bids, he said, because it’s difficult for CEOs to turn a fundamentally poor company into a good one. In Cramer’s opinion, good companies with cheap stock are more likely to get taken over.
If you’re waiting for a takeover to save your crummy stock, you might be waiting forever, according to him.
“Absolutely do not speculate on takeovers in companies that have deteriorating fundamentals,” Cramer said. “If a possible takeover is the only reason you have for liking a stock, you shouldn’t like it in the first place.”
