A friend asked me if she should sell her holding of a stock which seem to have lost its main business and is currently pretty stagnant in the stock market. My question is, what would she do with the money? Buy another stock? Invest in other assets like property? Transfer the money into the unit trust? Or just keep under her pillow so that she can dream about what the money can bring? The correct answer should always be, do you have something better to invest in? I know, your next question is, how would I know whether the new investment is better than the current investment? No one knows but from you would have to make your own decision based on whatever information you have. For example, assuming you intend to invest in another counter in Bursa Malaysia, why not read more about that counter. How has the revenue vs profits been for the past few years. Is the company in a good shape or are the prices now going up because ‘someone’ said this company got ‘potential’ due to some unforeseen circumstances? If you believe this ‘someone’, then sure, sell your current stock and quickly enter into this new counter. It’s what you believe more, really.
If you say I intend to use the money to buy property, well, have you identified one? If the answer is yes, I have identified one and it meets my expectations in terms of potential capital appreciation and rental yield, then of course you should sell your current stock and move your funds into this new property that you are about to buy. If your answer is not yet, then I think it may be best to hold on to your stock until you identify a suitable one. Buying a property takes a much longer time compared to selling a stock counter in Bursa Malaysia. Thus, you should do the one which takes a much longer time first. Please do not ask how would I know if that property would give me higher returns? Well, it all depends on what you believe in, more. That new property asset or your current ‘not really moving’ stock counter.
Unit trust is even more straight forward. You can choose aggressive funds which is everything equity or the usually stagnant bond type of funds. Both have its awesome benefits and risks. Bond fund have no risks? Haha. Do note that if your bond fund continue to give you just 4% every year from now till your retirement, I think that’s the highest risk of all. As long as after you have evaluated and you found one fund suitable for you and it’s going to outperform your current stagnant stock, do sell and move your money into the unit trust. I am sure your agent friend would be happy to tell you more why you should buy unit trust instead of stocks.
If however you have no plans at all beyond selling your stocks, then I think it may be more prudent to leave it there because if that stagnant stock is giving you huge losses you would have sold it earlier anyway. If you have waited, it meant you believed in it. To me, this belief is much better than holding the money and doing nothing. At least a thief cannot steal the stocks you are currently holding. Plus, with the current negativity in the share market, waiting a little may be required too. Switching should always be for something better, in your personal opinion after evaluation. Oh yeah, this is what I would personally do. It does not have to be what you would do. Happy deciding.
written on 16 Dec 2014.
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