Ask Colin

What should I do with the dogs I have left after the 2000/01 aftermath?

This raises an important way of thinking about markets:

The value of a holding is now what you can sell it for, not what you paid for it. Paper losses are real losses. Just because they are not realised, does not mean they are not real. This is a very sanguine way of looking at things, but it is necessary, because trading and investing is a very cold-blooded pastime (or it should be).

So, forget about cost, it is irrelevant now. Instead you have to consider the trade or investment as it stands today:

If it was an investment for the long term, you need to decide whether you would still want to buy it today, if you did not own it. If you are without the skills to assess this yourself, you will need advice from a licensed adviser. If you would not buy it today, then sell it now. As a technical analyst, I would sell anything that was trending down. If the chart showed evidence of an accumulation pattern, then I would look further into it with a view to maybe deciding to hold it.

If it was a trade for the short term, then, frankly you have no right still holding it. You should have had a stop-loss level and executed it (sold) a long time ago. Reassess it now. If it is trending down, I would sell it. If it is now trending up, I would stay with it. If it was forming an accumulation pattern, I would look into the company further to see if it is worth holding. However, I would also set a clear stop-loss level right now - do not repeat the earlier mistake.

In selling out of bad trades versus holding them, it is important to understand the idea of "opportunity cost" - while you sit in a bad trade hoping it will come good, your losses are not just in the stock you hold, but also the profit you might have made in another stock by redeploying your capital. In principle, I prefer to get out of stocks going down and switch into stocks trending up.

There are also tax considerations - you may want to take some losses and reduce tax this year. However, this is not something I am qualified to advise you about.