Q: One of the companies I own shares of just announced some bad news and the stock has been falling ever since. Should I sell my shares and move on?
Well, it depends. Not all so-called bad news is in the same category.
My general rule of thumb is that if the bad news alters your investment thesis, it could be smart to sell. If it doesn't, it could not only be a good idea to hold, but to buy more shares at a discount.
A personal example is Apple (NASDAQ:AAPL), which is one of the largest stock positions in my portfolio. Thanks to a few reporting changes and lowered guidance, Apple is down roughly 35% from its recent peak.
However, I don't own Apple because I thought its latest iPhone would sell better than analysts expected. I own the stock because I love the company's ecosystem, loyal customer base, and growing services business.
I'm often asked what would make me sell Apple -- in other words, what would make me question my investment thesis. Well, one big factor I pay attention to is the tech titan's market share. If it were losing share to a competitor -- say, Samsung -- it could make me rethink my investment. However, recent reports show that the opposite is true: Apple is actually gaining market share and bringing new users into its ecosystem.
The bottom line is that if the bad news is a temporary setback in an otherwise great growth story, don't let it make you panic and sell.
Matthew Frankel, CFP owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.