--- title: "Should I sell my stocks now? Decide the rule before the drop" url: "https://amaltash.com/articles/should-i-sell-my-stocks" published: "2026-11-10T20:24:36.821469+00:00" summary: "Why the middle of a fall is the worst time to decide, what a century of market history says about rules, and how to write one you’ll actually follow." --- # Should I sell my stocks now? Decide the rule before the drop Why the middle of a fall is the worst time to decide, what a century of market history says about rules, and how to write one you’ll actually follow. TL;DR - Most investors lose the most by deciding during a drop, not because of the drop itself. - Holding through every crash isn't a plan either. Some falls recover in months. Some take fifteen years. - Investors have used simple rules to handle this for almost a century. They work for one reason: they are decided when you are calm. - Set yours on a quiet day: when you exit, when you buy back, and where the cash waits. --- Every time the market falls, the same question shows up. In group chats. At dinner. Should I sell? Here is the honest answer. If you are asking it right now, in the middle of the drop, you are asking it at the worst possible time. Not because the answer is always "no." Because this is the moment you are least able to answer it well. To see why, it helps to look at how old this question is, and how differently it has played out. ## An old question with no single answer In 1949, Benjamin Graham, the investor who later taught Warren Buffett, described the stock market as a business partner he called Mr. Market. Every day, Mr. Market shows up with a price. Some days he is euphoric and offers too much. Other days he is gloomy and offers too little. You are free to ignore him. Graham's point was simple: his mood is not your instruction. "Should I sell now?" is really asking: should today's mood decide for me? The trouble is that, in the moment, you can't tell which kind of fall you are in. Look at two of the biggest in living memory. 2020: the fast fall. The S&P 500 fell 34% in 23 trading days, from February 19 to March 23. It was the fastest bear market on record. Then it recovered just as fast. By August 18, it had closed at a new all-time high. Anyone who sold in March sold near the bottom and watched the rebound from the sidelines. 2000–2002: the slow fall. The Nasdaq Composite peaked in March 2000, then fell 78% over the next 31 months. That one did not snap back. The index did not set a new record close until April 2015, fifteen years later. Anyone who held on "because it always comes back" waited a decade and a half to get back to even. Same question. Opposite answers. In 2020, selling was the mistake. In 2000, holding was. And nobody knew which story they were in until it was over. That is why the question has no good answer in the moment. It needs a better answer, given earlier. ## Why your brain is working against you Even if you knew the history, a falling market makes clear thinking hard. Two well-studied habits get in the way. Losses hit about 2x harder than gains. This is the finding behind Daniel Kahneman's Nobel Prize. Watching $10,000 disappear from your account hurts about as much as gaining $20,000 feels good. Your brain isn't weighing the trade evenly. It just wants the pain to stop, and the fastest way to stop it is the sell button. We sell winners and sit on losers. When researchers went through the trading records of 10,000 brokerage accounts, the pattern was clear: people happily sold stocks that were up and held on to stocks that were down. A loss doesn't feel "real" until you sell, so you wait to get back to even. Put those together and you get a familiar pattern. First you freeze, because selling would make the loss real. Then the fall keeps going, the pain builds, and you sell. Often near the bottom. Both decisions feel right at the time. ## What deciding mid-drop costs The data on this is consistent. 7 of 10. Seven of the S&P 500's 10 best days over the last 20 years came within two weeks of one of its 10 worst days. The rebound tends to arrive while the fear is still high. ([J.P. Morgan Asset Management, Guide to Retirement](https://am.jpmorgan.com/sg/en/asset-management/per/insights/retirement-insights/guide-to-retirement)) 10.4% → 6.1%. The S&P 500 returned about 10.4% a year from 2005 to 2024. Miss just the 10 best days and that drops to about 6.1%. ([J.P. Morgan Asset Management](https://am.jpmorgan.com/sg/en/asset-management/per/insights/retirement-insights/guide-to-retirement)) 7.0% vs 8.2%. Over the ten years to 2024, the average fund investor earned 7.0% a year, while their funds returned 8.2%. Same funds. The gap came from when people bought and sold. ([Morningstar, Mind the Gap 2025](https://www.morningstar.com/business/insights/research/mind-the-gap-2025)) ## So should you never sell? Not quite. The data says panic selling is expensive. But having no plan for exits is even worse. QQQ, one of the most popular funds in the world, [fell 35.6% from its high to its low in 2022](https://chartrow.com/quote/qqq/drawdown). Plenty of people who said "I'll just hold" found out halfway down that they couldn't. They sold near the bottom anyway. That is the worst of both. They took most of the loss, then missed the recovery. The real problem is not selling. It is deciding in the moment. ## Why rules work The fix is an old one. In Homer's Odyssey, Ulysses knows his ship will pass the Sirens, whose song lures sailors onto the rocks. He doesn't trust himself to resist. So before they reach the Sirens, he has his crew tie him to the mast and tells them to ignore anything he says until they are past. He made the decision while he could still think clearly. Economists call this a precommitment. Pilots and surgeons use the same idea in their checklists: under pressure, even experts skip steps, so the steps are decided in advance. A rule does three things a gut call can't: 1. It is made while you are calm. The choice happens on a quiet afternoon, not at 11pm on a red day. 2. It is consistent. It responds the same way every time, so you can learn whether it works. A different gut call in every crash teaches you nothing. 3. It can be tested. You can run a rule through decades of past prices before you trust it with money. You can't backtest a feeling. ## A short history of one simple rule One rule has been studied more than almost any other: comparing today's price with its long-term average. The 200-day average is the average price over the last 200 trading days, roughly ten months. When the price is above it, the trend is generally up. When it falls below, the trend has turned down. ([Investopedia](https://www.investopedia.com/ask/answers/013015/why-200-simple-moving-average-sma-so-common-traders-and-analysts.asp) has a good explainer.) Economist Jeremy Siegel tested a version on the Dow Jones Industrial Average from 1886 to 2006: own the index while it closed at least 1% above its 200-day average, and move to Treasury bills when it closed at least 1% below. In 2007, Meb Faber published a simpler version. Once a month, check the price. If it is above its 10-month average, stay invested. If it is below, move to Treasury bills. He tested it on US stocks back to 1901, then on other asset classes. His finding: returns close to buy-and-hold, with lower volatility and smaller drawdowns. The paper went on to become the most downloaded on SSRN, the largest library of finance research. Why would something this simple help? Long, deep falls, like 2000–2002 and 2008, tend to happen while prices sit below their long-term average. A rule that steps aside during those stretches avoids much of the damage. It won't catch the top or the bottom. It isn't trying to. Faber revisited the rule ten years later, and his own conclusion was telling. The hardest part wasn't the rule. It was sticking with it through the years when it lagged. That is the real lesson. Rules are simple. Following them is not. Which is why the rule has to be decided, and ideally automated, before you need it. ## Writing your own rule A complete rule answers three questions. Most people only answer the first. 1. The exit. What drop makes you step out? "If it falls 15% from its recent high, I sell." The number matters. Every investment wobbles. A popular fund can drop a few percent in a normal week and recover the next. If your exit is too tight, ordinary noise will trigger it, and you'll sell and buy back again and again. Pick a level that only fires on a real fall, not a bad Tuesday. 2. The re-entry. What makes you step back in? "When the price climbs back above its 200-day average, I buy again." This is the part almost everyone skips. Selling is easy. Buying back is where people freeze, because the market always looks scary right after a drop. "I'll get back in when things calm down" is not a rule. Things never feel calm at the bottom. Without a re-entry rule, one exit can quietly turn into years on the sidelines, which is exactly what the "missed the best days" numbers measure. 3. Where the money waits. While you are out, where does the cash sit? "In a short-term Treasury fund, so it keeps earning." Stepping out shouldn't mean earning nothing. Short-term Treasury bills pay interest and move very little, so your cash keeps working while it waits. You don't have to go all or nothing, either. "If it falls 15%, I sell half" is still a rule. It is far better than no rule. ## Pick your number in dollars, not percent Percentages feel abstract. Dollars don't. You have invested | After a 15% drop | After a 30% drop | After a 50% drop $25,000 | $21,250 | $17,500 | $12,500 $100,000 | $85,000 | $70,000 | $50,000 $250,000 | $212,500 | $175,000 | $125,000 What your account would show after each drop. If you have $100,000 invested, a 30% drop means opening your app and seeing $70,000. Would you calmly hold? Or would you sell? Be honest. The drop you can actually sit through is your number. Your exit should come before it. ## What a rule will not do A rule does not predict the market. Nothing does. The best and worst days cluster together, so a rule that steps aside during a fall will miss some of the bounce days too. In a crash like 2020, a rule would have sold on the way down and bought back after much of the rebound had already happened. You would buy back higher than you sold. In a smooth year with no big drops, a rule looks a lot like doing nothing. A rule is built for the other kind of fall: the long slide that doesn't come back for years. You won't know in advance which kind you are in. That is the point. The rule decides for you, the same way, every time. That is the trade. You give up a little in the good stretches. In return, you know in advance roughly how much you can lose. For a lot of people, that is what makes it possible to stay invested at all. ## Write it down. Better yet, automate it. A rule in your head is a suggestion. At 11pm on a red day, you will find a reason to override it. So write it down. Copy this and fill in the blanks: MY RULE (written on a calm day) I own: ____________ Exit: If it falls ___% from its recent high, I sell ___ (all / half). Re-entry: I buy back when ____________________. While I wait, my cash sits in: ____________. I will not change this rule during a drop. Or set it up so it runs without you. That is why every Amaltash plan has guardrails: a loss limit, a max drawdown, a profit target and a re-entry rule. You set them once, and they are followed automatically. [Auto-Managed QQQ](https://amaltash.com/articles/auto-managed-qqq) is one example: it owns QQQ, steps out after a 12% fall from its peak, waits in Treasury bills, and buys back when QQQ climbs above its 200-day average. The next drop is coming. It always is. Decide your rule before it, not during it. --- ## Frequently Asked Questions ### Should I sell my stocks during a market crash? Selling in the middle of a crash often locks in losses right before a rebound. The S&P 500’s best days tend to come within two weeks of its worst. That’s why many investors set an exit rule ahead of time instead of deciding mid-fall. ### What is a simple rule for when to sell? A common one is to sell, or sell half, if an investment falls a set amount from its recent high, such as 15%. Pick a level bigger than the investment’s normal ups and downs, so ordinary noise doesn’t trigger it. ### When should I buy back in after selling? Decide that in advance too. One widely studied signal is buying back when the price climbs above its 200-day average, meaning the average price over the last 200 trading days. Without a re-entry rule, an exit can turn into years on the sidelines. ### Where should cash go after I sell? Many rules move it into short-term Treasury bills or a T-bill fund. These pay interest and move very little, so the money keeps earning while it waits. ## Sources - Benjamin Graham, The Intelligent Investor (1949), chapter 8, "Mr. Market" - S&P 500 2020 decline and recovery: [NPR, Aug 18, 2020](https://www.npr.org/sections/coronavirus-live-updates/2020/08/18/903252878/the-big-comeback-s-p-500-closes-at-record-high-6-months-after-coronavirus-plunge) - Nasdaq Composite 2000–2015: [Fox Business, Nasdaq milestones](https://www.foxbusiness.com/markets/milestones-for-the-nasdaq-composite); [Wikipedia, Nasdaq Composite](https://en.wikipedia.org/wiki/Nasdaq_Composite) - Kahneman & Tversky, "Prospect Theory: An Analysis of Decision under Risk," Econometrica (1979) - Terrance Odean, "Are Investors Reluctant to Realize Their Losses?" Journal of Finance (1998) - J.P. Morgan Asset Management, [Guide to Retirement](https://am.jpmorgan.com/sg/en/asset-management/per/insights/retirement-insights/guide-to-retirement), "Impact of being out of the market" (S&P 500 Total Return, 2005–2024) - Morningstar, [Mind the Gap 2025](https://www.morningstar.com/business/insights/research/mind-the-gap-2025) - QQQ 2022 drawdown: [ChartRow](https://chartrow.com/quote/qqq/drawdown) - Mebane Faber, "A Quantitative Approach to Tactical Asset Allocation," Journal of Wealth Management (2007), and "…Revisited 10 Years Later," Journal of Portfolio Management (2018); summarized by [Larry Swedroe, ETF.com](https://www.etf.com/sections/index-investor-corner/swedroe-why-financial-trends-persist) - 200-day moving average: [Investopedia](https://www.investopedia.com/ask/answers/013015/why-200-simple-moving-average-sma-so-common-traders-and-analysts.asp) --- This is general education, not personalized investment advice. Examples are illustrative only, and historical studies of rules like the 200-day average are hypothetical, not actual trading results. Past performance does not guarantee future results. All investing involves risk, including the possible loss of the money you invest. Advisory services are provided by Amaltash Advisors LLC, an SEC-registered investment adviser. --- Educational content published by Amaltash Advisors LLC. Nothing here is investment advice or a recommendation to buy or sell any security. All investing involves risk of loss, including loss of principal, and past performance does not guarantee future results.