Selling and protecting capital

We have The Reject Shop in our SMSF, we were happy with it up until about 18 months ago.

We’re not good at selling and taking a capital loss, we tend to hold on hoping it improves or tell ourselves it can’t fall much more – anyway, we’re now down 56%. There seems to be a few on-going issues with The Reject Shop too.

Is there a rule about selling and protecting capital – should we sell when a stock is down say 25% and it’s immediate prospects don’t look good?

So often a stock recovers after a big fall, sometimes in the same week. Can’t see that happening with the Reject Shop, it only seems to be going in one direction…down!

A: Sorry to hear about your experience as an investor in The Reject Shop.

To be honest, The Reject Shop (TRS) is not a stock I follow closely.

Firstly, the analysts still like it. According to FN Arena, the consensus target price is almost 60% above the current price at $11.57. Sentiment is positive with 2 buys and 1 neutral. On a multiple basis, they have the stock at 9.7 times FY17 earnings, and 8.4 times FY18 earnings.

Is there a hard and fast rule? Not in my book. However, there is an old investment adage that goes… “your first loss is your best loss”.

I think there are two questions you mad need to answer::

  1. a) have you got something else to invest in, or do you need the cash?; and
  2. b) is the paper loss clouding your view on other investment opportunities?

If you answer yes to these question, then yes, I think you should sell. If no to both, and given that the analysts say that the stock is cheap, I would be inclined to hang on.


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