I firmly believe that when it comes to buying and selling stocks, you must trust yourself more than you trust others. If you think that something isn't right in your portfolio, don't ignore those feelings. That doesn't necessarily mean sell; I'm simply saying you might reconsider your positions. Likewise, when your neighbor insists a stock is a loser, but you've done your research and your instincts tell you otherwise, make a small investment in that company. If you don't want to let your fear of loss keep you from ultimate gain, consider the following pointers:

1. Keep a close watch over your stock, paying attention to the daily volume of shares traded. When the volume increases dramatically and the price of the stock falls, that's a danger sign. Similarly, if the past several quarterly reports show the earnings per share is decreasing significantly or future earnings are projected to decline, those are other bad signs.
2. Watch for a split: When a company distributes more stock to its shareholders, that's called a stock split. For example, a two-for-one stock split means that for every share you held before the split, you now hold two shares at half the presplit value. If a stock splits twice in less than a year, the stock may be volatile—and that might spell trouble.
3. Look at the overall market. If it's plummeting and you've investigated the tax consequences of selling some or all of your stock, you might prefer to take the loss on next year's tax return. If you're in the market for the long term, ask yourself if you still think you have a great stock.You might prefer to wait out the downturn.
4. Follow a stock's moving average—the average closing price of the stock over a period of time. When a stock falls below its own 20-month moving average, that's a signal to sell at least some of the stock. Charting services on the Internet can help you stay on top of your portfolio.
5. If a stock falls 10 percent or more below the price you paid—without an obvious reason—and the market or other stocks in that sector are going up, sell at least some of the stock. If, however, the stock has been affected by circumstances you think will change, consider buying more as the price falls. I'm not recommending throwing everything you have into a stock that's bombing, but by investing small amounts of money each month in a company you believe in, you'll actually benefit from the lower price and be able to buy more shares than you otherwise could have.
From the July 2001 issue of O, The Oprah Magazine
Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.

NEXT STORY

Next Story