The Motley Fool

Stuck with a bad stock?

Investing in individual shares is the best way to beat the market over the long-term in my opinion.

However, the more you focus on growth shares, the more likely you are to end up choosing a bad one.

So, what do you do if you end up with a Reffind Ltd (ASX: RFN) or 1-Page Ltd (ASX: 1PG)?

Hold and hope?

If a share price has fallen a lot, it’s worth looking at why you invested in the first place. If the long-term investment thesis is still intact, then perhaps it is worth holding on.

Shares like TPG Telecom Ltd (ASX: TPM) and Vocus Group Limited (ASX: VOC) have fallen a long way but they both could have solid futures from here with the growth of data usage.

A fallen share in your portfolio could also serve as a constant reminder to be as vigilant as you can be about the shares you invest in.

Sell and cut your losses

It might be the best choice just to cut your losses and get out of the stock, particularly if it’s going to keep heading downhill.

Many investors would have been much happier if they could have sold their Vocus or Telstra Corporation Ltd (ASX: TLS) shares at $5 instead of the prices they’re at now.

If the business looks like its going to go bust then it would probably be a better move to sell and get some cash, rather than nothing at all.

Perhaps buy more?

If you’re that confident that the market is wrong on the business, then perhaps you should buy some more. Getting a lower price can only help your returns if you’re right. If you’re wrong then you have thrown good money after bad, but that’s the game of investing sometimes.

Foolish takeaway

There isn’t one size-fits-all advice for a bad stock, but studies have proven that people are statistically more likely to be better off holding as opposed to selling, although that won’t be the case every time.

There may not be a clear-cut answer of when to pull out of a bad stock, but you should never have to pull out of these three great growth stocks.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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