Dylan Ratigan just asked one of his guests, some sort of trader from Zecco(?), what investors should do with stocks they bought 3 months ago that are now down. The guest replied, rather uninspiringly, that people should either ride it out or even look to buy more if they really think the stock represents a value.

Enlightening as that response was--and certainly there will be some beaten-up names worth holding at this point-- I wanted to pose another line of thought. Following is a short piece I wrote over at Real Money [1] back in January. It's re-print below in full:

If you've been fully invested during this downturn, you must be reaching your threshold for pain tolerance. At this point, though, we're so dramatically oversold that you should really fight the urge to unload indiscriminately.

That said, bravely sitting on your hands doesn't necessarily reflect the most prudent money management technique at this time, either. There is some wise selling that you can do now: tax-loss selling.

If I'm right and we're setting up for a massive rally soon then why not book a few losses now in advance of such a move?

If you like a sector you're in, fundamentally, it's usually pretty easy to sell one stock and buy another that's very similar--one dry bulk carrier for another, one regional bank for another one like it, etc.

If you're losing confidence in the fundamentals of one of your sectors, why not increase your exposure to a group you like better? One way to find a preferred group is to focus on relative strength, I wrote about in a little more detail [2] which earlier today. Suffice it to say: the groups that hold up best in a sell-off are usually first to rally when the market bounces.

Food for thought as we approach another washed-out market condition...