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All the Stocks I'm Selling If the Market Keeps Falling

By Keith Speights - Updated Feb 7, 2018 at 1:37PM

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Coming up with the list was really easy.

Doom, despair, and agony are upon us.

The Dow Jones Industrial Average fell by 666 points on Feb. 2. There must be something symbolic that the Dow just happened to fall by a number associated with evil. (Sure, the index technically fell by 665.75 points, but who wants to quibble over a quarter of a point?) 

This decline was the worst one-day drop for the Dow since the financial crisis of 2008 -- and we all remember what happened then. So over the weekend, I decided to carefully review my investment portfolio to identify all of the stocks that I should sell if the market continues to fall. It's best to be prepared, right? 

Man looking at red line chart piercing through floor

Image source: Getty Images.

Decision criteria

To create a list of stocks to sell if the market keeps falling, I thought it would be best to first come up with key criteria to make the decisions. Financial condition was the first criterion that came to mind. I decided that I'd sell the stock of any company in my portfolio that was in poor financial shape. 

Then it occurred to me that it wouldn't be smart to hold on to the stock of any company that was in an industry that was likely to be rendered obsolete by new innovations. Dinosaurs simply don't have a place in a market with a survival-of-the-fittest dynamic.

But those two criteria weren't enough. What if I had a stock of a company that was in pretty good financial shape and operated in an industry that was sustainable, but had a horrible management team? I decided any such stock had to go. 

I racked my brain to identify any other factors that should be part of the criteria to dump a stock. One word popped into my head: valuation. It wouldn't make sense to hold on to a stock that was valued so ridiculously high that there was no way for it go higher. 

Applying the criteria

I currently own 20 stocks. As it turned out, most of the businesses behind these stocks are in great financial shape. That only made sense, because most of them were in great financial shape when I bought the stocks.

There is one exception, though. Editas Medicine (EDIT -0.22%) is a biotech with no approved products, and therefore no steady stream of revenue. But I knew that was the case when I bought Editas. The reason the lack of ongoing revenue didn't prevent me from buying the stock was that I believed in the long-term potential for the CRISPR-Cas9 gene-editing technology that Editas is pioneering.

DNA image over outstretched hand

Image source: Getty Images.

Will a stock market correction -- or even a crash -- make me think differently about the potential for Editas? No way. The biotech holds patents for use of CRISPR-Cas9 in humans. While it's still early, I think the gene-editing technology could be a game-changer in healthcare. Therefore, Editas didn't make my list of stocks to sell if the market keeps falling.

Are there any stocks that I own for companies in "dinosaur" industries? Probably the closest would be Chevron (CVX 1.64%). At some point, fossil fuels will be replaced by other alternatives. Again, though, I knew that when I bought Chevron stock.

Oil and gas should be critical to the world economy for years to come. Chevron remains a leader in the industry -- and it pays a hefty dividend that yields nearly 3.5%. A declining stock market shouldn't accelerate the demise of the oil and gas industry, so I decided to hold on to Chevron stock for a while.

What about poor management teams? Wells Fargo (WFC 7.55%) has been plagued by the "fake account" scandals, which definitely affected its stock performance in 2017. U.S. Sen. Elizabeth Warren even demanded that the bank's CEO, Tim Sloan, be fired, telling him that "at best you were incompetent, at worst you were complicit" in the scandal.

But I held on to Wells Fargo stock throughout the period when the scandal unfolded. Why? I thought the long-term prospects for the company were still very good. And I thought that in the shorter term, the likelihood of increasing interest rates would help Wells Fargo. I still believe both things -- and a declining stock market won't change my thinking. That means Wells Fargo isn't on the list to sell, either.

As for valuation, I own NVIDIA (NVDA 5.55%) stock, which trades at nearly 50 times expected earnings. That's certainly a steep valuation. I knew NVIDIA was pricey but bought it anyway. In fact, I kicked myself for not buying it earlier because of its seemingly high valuation. The reasons I eventually bought NVIDIA -- including its potential in artificial intelligence, virtual reality, and blockchain processing -- will be intact in a falling market or a rising one. NVIDIA, therefore, is still a keeper. 

My final list

So which stocks did make the list to sell if the market keeps falling?

None of them.

As you might have surmised, this entire exercise was largely a tongue-in-cheek one. The reality is that I was never going to sell any of my stocks just because of a market decline. Every one of the criteria that I identified earlier for selling stocks are applicable at any time -- not just during a market correction or crash. More important, they're applicable when stocks are bought in the first place.

There are times to sell stocks, of course. Sometimes the factors that made you buy a stock no longer apply. Sometimes there's simply a better stock to buy than one you own. But the performance of the overall stock market has nothing to do with those decisions.

Even if it did, it's important to keep things in perspective. Are we really in the midst of doom, gloom, and despair? Not at all. That 665.75-point decline on Feb. 2 amounted to a relatively puny 2.54% change. The Dow Jones index is still near its all-time high. 

And while it's easy to remember the pain of the last bear market, remember, too, what happened after the Dow's big drop in 2008. The index languished for a while but nearly tripled over the next few years. 

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Stocks Mentioned

NVIDIA Corporation Stock Quote
NVIDIA Corporation
$171.26 (5.55%) $9.01
Chevron Corporation Stock Quote
Chevron Corporation
$144.77 (1.64%) $2.34
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$40.76 (7.55%) $2.86
Editas Medicine, Inc. Stock Quote
Editas Medicine, Inc.
$13.47 (-0.22%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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