When it comes to deciding on what company to invest in, you have to build a story first around that company. You fill in the storybook pages with research on that particular company regarding its meaning, intrinsic value, and management.
When we see that there’s been a change in that story, that usually means we need to reevaluate that investment. Not all changes to the story are bad: Some will signal you to sell your investment for an excellent profit. At other moments, it might be better to buy even more of that company’s stock.
Here are some key signs that you should take an extra look at your portfolio.
There’s an economic downturn
No one is truly able to predict an economic downturn, or how it’ll affect different industries and products. A recession could really hurt some businesses, while others may actually benefit from it. For example, COVID-19 negatively affected the entire travel industry, yet it positively impacted the home fitness industry.
Matt Choi is the CEO and founder of Certus Trading, an online trading platform that offers trading education for experienced traders. His industry knowledge spans years upon years, he has a unique insight into the world of trading from a professional perspective.
“Regardless of what industries you’ve invested in are shrinking or growing, an economic downturn is certainly a time to re-evaluate your investment portfolio,” says Choi. “It’s a good time to expose the strengths or weaknesses of a company that you may have not seen before. Take it as an opportunity to learn.”
During this time, you can truly discover what companies will sink or swim, and hold or sell accordingly.
There’s a shift in the industry
Industry shifts can often happen much slower than a big economic downturn or change in company management, so they can be easy to overlook. However, some shifts can make products and companies obsolete, so it’s pretty important to pay attention to what’s happening within the industry.
Is new technology rendering the company less competitive in the current day? Are new laws regulating how the said company operates?
If you don’t feel comfortable with the answers to those questions, then don’t be afraid to sell, according to advice from popular trading education site The Motley Fool.
“Even though long-term investing is the best way to own shares, that doesn’t mean you have to hold every share you buy for decades, no matter what,” according to an investing guide from the site. “Stick with companies while they fit your investment strategy, but if circumstances change, be prepared to reevaluate.”
The company is under new management
Evaluating a company’s management is a pivotal part of telling its story and it’s usually pretty essential information. It should be a given that if the management changes, it’s time to reassess.
“New management can be a sign of underlying problems with the business, such as poor money management or a potential scandal, although that’s not always the case. It’s better to do your research before making a snap decision,” Choi said. “However, a change in management can also be a good thing. A new CEO could have a positive record of success and integrity. They may even lead the company in a better direction.”
If this situation leads to negative information, it’s likely time to sell. But if it leads to a positive shift in the story, it may be a good time to buy more stock.
When the story of a chosen company is changing, it’s time to re-evaluate your investments and decide whether or not the company’s new story is worth investing your money — and more importantly — your time.